Option A in totally wrong because it is talking about MWROR relies on timing of cash flows.
Option B is wrong because it says, Pvt. Equity has low volatility.
So by this Option B is correct. Honestly, I was also not sure that why two rates being discussed in IRR because there is only re-investment assumption at IRR and discount rate is also not needed for IRR calculation. But after reading solution its clear that IRR needs two rates, one for comparison with discount rate and another ofcourse IRR itself. Option B is right.
See as here in private equity its curve is like the J curve because in the initial it invests but doesn’t get profit and after some time it gets to profit
So as here there is committed capital like suppose 500 million ok
And then the General partner wants 100 million to invest he take from a limited partner, as here all effort is taken by the general partner when to invest so we will use MWROR (Money weighted rate of return ), and return we get by mwror is IRR So as here General partner decide when to invest we use IRR (MWROR) to get a rate of return
Option A in totally wrong because it is talking about MWROR relies on timing of cash flows.
Option B is wrong because it says, Pvt. Equity has low volatility.
So by this Option B is correct. Honestly, I was also not sure that why two rates being discussed in IRR because there is only re-investment assumption at IRR and discount rate is also not needed for IRR calculation. But after reading solution its clear that IRR needs two rates, one for comparison with discount rate and another ofcourse IRR itself. Option B is right.
See as here in private equity its curve is like the J curve because in the initial it invests but doesn’t get profit and after some time it gets to profit
So as here there is committed capital like suppose 500 million ok
And then the General partner wants 100 million to invest he take from a limited partner, as here all effort is taken by the general partner when to invest so we will use MWROR (Money weighted rate of return ), and return we get by mwror is IRR So as here General partner decide when to invest we use IRR (MWROR) to get a rate of return
Hope you knew TWROR AND MWROR
Hope this help you