### What is the Modified Dietz Return?

##### o Let’s say you start with $100 and you have a return of 5% and end the period with$105. Then you contribute another $95 to start the next period with$200. In the next period you have a return of 10% for a gain of $20. ##### o You will notice that the return doubled from 5% to 10% but your profits went from$5 to $20 because you had more money invested in the second period. ##### o If this period was 1 year, your IRR would be approx 17% and your TWR would be 15.5%. ##### o The IRR takes into account that you had more money invested when you had the higher return. ##### o The TWR, by linking the two separate periods of 5% and 10% assumes both periods had the same amount of money invested, hence like the “growth of$1.”
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