Canadian Securities Course (CSC) Level 2 Practice Exam

The primary purpose of the time-weighted rate of return (TWRR) calculation is indeed to minimize the effects of contributions and withdrawals. This method is particularly important for assessing the true performance of an investment manager or fund over a specific time period, as it effectively isolates the performance of the investment itself from the timing of cash flows, such as deposits and withdrawals made by investors.

By using TWRR, investors can obtain a clearer picture of how well their investments are doing, independent of any external cash movement that could distort the overall return. This allows for a more accurate comparison of performance across different investment periods and managers, as it standardizes the returns to reflect only the investment performance achieved during the time the investor’s capital was at work.

In contrast, other options focus on aspects that are secondary to the primary goal of the time-weighted calculation. Ensuring high-performance results and tracking performance against a benchmark serve specific purposes but are not the core objective of the TWRR method itself. Facilitating trading with low margin is unrelated to the calculation of investment returns.