The Spaulding Group
Call Now: 732-873-5700
Menu
  • GIPS
    • What Our Clients Say
    • GIPS 101
    • What is GIPS Verification?
    • GIPS Support/Pre-Verification
    • GIPS Verification Services
    • Non-GIPS Verification
    • GIPS For Asset Owners
    • Can OCIOs Be GIPS Compliant
  • Services
    • Consulting
      • Technology Consulting
      • Operations Review
    • Training
      • Fundamentals of Investment Performance Measurement
      • Performance Measurement Attribution
      • GIPS Workshop
      • In-House/Custom Training
      • Portfolio Risk Class
      • Performance Measurement for the Non-Performance Professional
      • PERFORMANCE MEASUREMENT FOR ASSET OWNERS AND CONSULTANTS
    • Software Certification
    • Vendor Support
      • Marketing Support
      • System Consulting
    • Publishing
    • Research
  • Products
    • The Journal
      • Media Kit
      • Article Submissions
      • Past Articles of The Journal of Performance Measurement
      • Dietz Award Winners
  • Conferences and Forums
    • Conferences
      • Virtual PMAR Web-Conference
      • PMAR North America
      • PMAR Europe
      • PMAR West
      • Performance Jeopardy Champions
      • Web Conferences
    • Performance Measurement Forum
    • Asset Owner Roundtable
  • Investment Performance Guy Blog
    • CIPM Tips & Tricks
    • Resource Center
  • About Us
    • TSG In The News
    • The Company
    • Awards and Recognition
    • Our Story
    • Careers
  • Contact
  • GIPS
    • What Our Clients Say
    • GIPS 101
    • What is GIPS Verification?
    • GIPS Support/Pre-Verification
    • GIPS Verification Services
    • Non-GIPS Verification
    • GIPS For Asset Owners
    • Can OCIOs Be GIPS Compliant
  • Services
    • Consulting
      • Technology Consulting
      • Operations Review
    • Training
      • Fundamentals of Investment Performance Measurement
      • Performance Measurement Attribution
      • GIPS Workshop
      • In-House/Custom Training
      • Portfolio Risk Class
      • Performance Measurement for the Non-Performance Professional
      • PERFORMANCE MEASUREMENT FOR ASSET OWNERS AND CONSULTANTS
    • Software Certification
    • Vendor Support
      • Marketing Support
      • System Consulting
    • Publishing
    • Research
  • Products
    • The Journal
      • Media Kit
      • Article Submissions
      • Past Articles of The Journal of Performance Measurement
      • Dietz Award Winners
  • Conferences and Forums
    • Conferences
      • Virtual PMAR Web-Conference
      • PMAR North America
      • PMAR Europe
      • PMAR West
      • Performance Jeopardy Champions
      • Web Conferences
    • Performance Measurement Forum
    • Asset Owner Roundtable
  • Investment Performance Guy Blog
    • CIPM Tips & Tricks
    • Resource Center
  • About Us
    • TSG In The News
    • The Company
    • Awards and Recognition
    • Our Story
    • Careers
  • Contact
Search the site...
Home» cash flow timing » Sample Rate of Return Exercise – Cash Flow Timing

Sample Rate of Return Exercise – Cash Flow Timing

Posted by admin - September 1, 2012 - cash flow timing, cash flows, CIPM Exam Tips & Tricks, CIPM expert, CIPM Principles, performance measurement, rate of return calculations

A Principles Level candidate emailed me the following problem, and asked me about how to interpret the timing of the cash flows:



In this case, given that they tell you that the fair valuations are inclusive of the flows, my interpretation would be that the timing of cash flows is end of day.  Thus, your sub-period returns would be based on this assumption as follows:
 
The first sub-period return is:

The second sub-period return is:

The third sub-period return is: 
The return for the month is then the geometrically linked sub-period returns:
(1+1.8182%)*(1+6.40%)*(1+7.6923%) – 1 = 16.67%.
Note:  in previous years, there was a Learning Outcome Statement that explicitly required candidates to know how to calculate sub-period returns when cash flows were at the start or end of the period.  In this exam window, the Learning Outcome Statements have been rephrased, so this is no longer explicitly stated, BUT, your reading still contains the discussion that covers these scenarios (see page 257) and this is a normal dilemma faced by performance analysts on an on-going basis.  Return calculations will be different depending on whether cash flows are assumed to be at the start or end (or during) an evaluation period.  Performance analysts must be able to interpret the data accordingly and calculate returns.
In an upcoming blog post, I will cover this subject in greater detail.
Happy studying!

Comments are closed.

Privacy Policy   Terms and Conditions
Copyright 2018-2019. The Spaulding Group.
  • Terms of Use
  • Privacy Policy
  • About Us
  • Contact Us
CFA Institute does not endorse, promote or warrant the accuracy or quality of The Spaulding Group, Inc. GIPS® is a registered trademark owned by CFA Institute.
 
This site uses functional cookies and external scripts to improve your experience. If you continue to browse the site, it indicates you accept our use of cookies.Accept Privacy Policy
Privacy Policy
Necessary
Always Enabled