Money-Weighted Rate of Return Calculator Ba Ii Plus

The money-weighted rate of return (MWRR) is a financial metric that calculates the average rate of return on an investment, weighted by the amount of money invested at each period. This calculator helps you determine the MWRR for investments using the BA II Plus method, which accounts for reinvested dividends and capital gains.

What is Money-Weighted Rate of Return?

The money-weighted rate of return is a performance measure that considers the timing and size of cash flows. It is particularly useful for evaluating investments where cash flows vary over time, such as real estate or private equity investments.

Unlike the internal rate of return (IRR), which assumes all cash flows are reinvested at the same rate, MWRR accounts for the actual timing of cash flows and the varying amounts of money invested at each period.

How to Calculate Money-Weighted Rate of Return

To calculate the money-weighted rate of return, follow these steps:

Identify all cash inflows and outflows over the investment period.
Calculate the cumulative cash flow at the end of each period.
Determine the money-weighted average of the investment.
Divide the total return by the money-weighted average to get the MWRR.

The BA II Plus method provides a more precise calculation by considering the exact timing and size of each cash flow.

Formula

The money-weighted rate of return (MWRR) is calculated using the following formula:

MWRR = (Total Return / Money-Weighted Average) × 100

Where:

Total Return = Final Value - Initial Investment
Money-Weighted Average = Sum of (Cash Flow × (1 + r)^t) / Sum of (Cash Flow × t × (1 + r)^t-1)

This formula accounts for the varying amounts of money invested at each period and the timing of cash flows.

Example Calculation

Consider an investment with the following cash flows:

Period	Cash Flow
0	-10,000
1	3,000
2	4,000
3	5,000

Using the BA II Plus method, the money-weighted rate of return would be calculated as follows:

Example Result: The money-weighted rate of return for this investment is approximately 12.5%.

FAQ

What is the difference between money-weighted rate of return and internal rate of return?: The money-weighted rate of return accounts for the timing and size of cash flows, while the internal rate of return assumes all cash flows are reinvested at the same rate.
When should I use the money-weighted rate of return?: Use the money-weighted rate of return when evaluating investments with irregular cash flows, such as real estate or private equity investments.
Can the money-weighted rate of return be negative?: Yes, the money-weighted rate of return can be negative if the investment loses money over time.
How does the BA II Plus method differ from other methods?: The BA II Plus method provides a more precise calculation by considering the exact timing and size of each cash flow.
Is the money-weighted rate of return suitable for tax calculations?: No, the money-weighted rate of return is not suitable for tax calculations. It is a financial performance measure only.