Answer: calculates multi-period cash flows mirroring a portfolio's compound growth rate.

## Explanation The correct answer is **B**. **Time-Weighted Rate of Return (TWRR)** is a performance measurement method that: 1. **Eliminates the effect of cash flows** - TWRR is NOT affected by the timing or amount of cash flows into or out of the portfolio (making option A incorrect). 2. **Measures compound growth rate** - TWRR calculates the geometric mean of returns over multiple periods, effectively measuring the portfolio's compound growth rate independent of external cash flows (making option B correct). 3. **Comparison with Money-Weighted Rate of Return (MWRR)**: - TWRR is generally preferred for evaluating portfolio manager performance because it removes the impact of client-directed cash flows. - MWRR (also known as Internal Rate of Return) IS affected by the timing and amount of cash flows. - There's no consistent relationship where TWRR is always lower than MWRR - it depends on the timing of cash flows relative to market performance (making option C incorrect). **Key Differences**: - **TWRR**: Measures portfolio manager's investment skill by eliminating cash flow effects - **MWRR**: Measures investor's actual experience including their cash flow timing decisions **Calculation**: TWRR = [(1 + R₁) × (1 + R₂) × ... × (1 + Rₙ)]^(1/n) - 1 Where R₁, R₂, ..., Rₙ are sub-period returns between cash flows.

Author: LeetQuiz .