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CT1 - April 2012 Exam Question 2 part iii)

  • Thread starter Polina Hadjipanayiotou
  • Start date
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Polina Hadjipanayiotou

Member
I am struggling to understand the explanation for this part. In my understanding, MWRR is lower because the fund performs better after the cash inflow than before and thats why the fund is larger after the cash inflow.

Answer based on Examiner's Report:
"The MWRR is lower as fund performs better before the cash inflow than after.
Then, as the fund is larger after the cash inflow on 1 May 2011, the effect of
the poor investment performance after this date is more significant in the
calculation of the MWRR."

Thanks in advance.
 
The MWRR is a measure of return that is weighted by the size of the fund over the periods considered. So, the return when the fund is large will have a larger impact on the MWRR than the return when the fund is small.

In this question, the fund does comparatively well before the cash inflow (from 2.3 to 2.9), but the fund is smaller over this period than after the cash inflow, so this has less impact on the MWRR. The fund does comparatively poorly after the cash inflow (falling from 4.4 to 4.2), and since the fund is larger in size at this time, this has more impact on the MWRR.
 
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