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Question:

Gus Hayden is evaluating the performance of the portfolio manager in charge of his retirement account. The account started with $5,000,000 and generated a 15% return in year 1 and a –5% return in year 2. Hayden adds $2,000,000 at the beginning of year 2. The appropriately measured annualized return is closest to:

A 4.5%.
explanation

1212Time-weighted returns are appropriate when the client exercises discretionary control over timing and amount of additions and withdrawals to the portfolio.
Time-weighted = or 4.52 %

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