Canadian Securities Course (CSC) Level 2 Practice Exam

What key feature distinguishes a Time-Weighted Rate of Return calculation in investment analysis?

1. Weighting based on market capitalization

2. Use of daily valuation

3. Integration of performance data

4. Focus on short-term returns

The correct answer is: Use of daily valuation

The correct answer is B: Use of daily valuation. A Time-Weighted Rate of Return calculation in investment analysis distinguishes itself by using daily valuation. This approach takes into account the impact of cash flows on the rate of return by valuing the investment on a daily basis. This method ensures that the performance calculation is not affected by when cash flows occur, making it a reliable measure of investment performance. In contrast: A. Weighting based on market capitalization is a characteristic of other performance measurement techniques, such as Market-Weighted Rate of Return, but not Time-Weighted Rate of Return. C. Integration of performance data may be a common feature in various performance measurement tools, but it does not specifically distinguish Time-Weighted Rate of Return calculations. D. Focusing on short-term returns is not a defining feature of Time-Weighted Rate of Return calculations, as this method is designed to measure performance over specific time periods without being distorted by cash flows or external factors.