Hi there,
In an IFT prep video, I heard the following:
For time-weighted return, if you start with a certain number, and have a particular cash inflow anytime in between, and end up with the same value, your time-weighted return will be same. Time-weighted return does not change based on the timing of the cash flow.
This makes sense for the first example he shows, where the time-weighted return in scenario 1 ( 0.41%) equals the time-weighted return ins scenario 2 (0.41%):
However it doesn’t seem to work in the second example he shows. Although the time-weighted returns are equal in the two scenarios (8%), this is only because he put $119,364 as ending value for the first scenario. If he would have put $120,000, the time-weighted return in scenario 1 would be different from the time-weighted return in scenario 2.
Please could someone explain this “contradiction”?
Thank you.