What if the difference between MIRR and MWRR
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- #3
They look the same thing to me, but they serve for different pursposes.
MWRR is on CFAI V6, page 131. – SS17
MIRR is on CFAI V6, page 286. – SS18
The Modified IRR method differs from the original internal rate of return method in that the exponent is the proportion of the measurement period that each cash flow is in the portfolio. Therefore, while the original IRR is a money-weighted return, the Modified IRR approximates a time-weighted return. (Level III V6, p. 286).
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MWRR is on CFAI V6, page 131. – SS17
MIRR is on CFAI V6, page 286. – SS18
The Modified IRR method differs from the original internal rate of return method in that the exponent is the proportion of the measurement period that each cash flow is in the portfolio. Therefore, while the original IRR is a money-weighted return, the Modified IRR approximates a time-weighted return. (Level III V6, p. 286).
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Please Refer to CFAI text Vol 6
In Example 4 (P.130) & Example 5, the returns calculated by TWR & MWR are almost same. Furthermore, the footnote 19 at the bottom of P.286 stated that “MIRR” approximates a TWR. But the return (0.41%) calculated using True TWR and the return (0.51%) calculated using MIRR (MWRR?) are quite different.
Now there are 2 questions :
1. MIRR = MWRR ?
2. True TWR = TWR ? Why it is said “True” ?
In Example 4 (P.130) & Example 5, the returns calculated by TWR & MWR are almost same. Furthermore, the footnote 19 at the bottom of P.286 stated that “MIRR” approximates a TWR. But the return (0.41%) calculated using True TWR and the return (0.51%) calculated using MIRR (MWRR?) are quite different.
Now there are 2 questions :
1. MIRR = MWRR ?
2. True TWR = TWR ? Why it is said “True” ?
1) Yes.
2) True TWR is the term used for linking the pre “large” cash flow return to the after “large” casf flow return. Say that a period consists of 30 days, and there is CF into the portfolio on the 10th day. True TWR is then the return between days 1-10 times the return between days 10-30.
2) True TWR is the term used for linking the pre “large” cash flow return to the after “large” casf flow return. Say that a period consists of 30 days, and there is CF into the portfolio on the 10th day. True TWR is then the return between days 1-10 times the return between days 10-30.
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MIRR and MWRR are not exactly the same, my friends.
From MIRR, we get a return which should NEVER be annualized.
From MWRR, we get an annualized return.
The two formulas look very similar, but their purposes[e.g. ‘R’] are quite different.
Thanks again for all the helps.
From MIRR, we get a return which should NEVER be annualized.
From MWRR, we get an annualized return.
The two formulas look very similar, but their purposes[e.g. ‘R’] are quite different.
Thanks again for all the helps.
