V1 Module 3 Errata: Benchmarking Returns

1. The Albright Fund Counts Internal Reinvestment as an External Cash Flow

Curriculum location: Money-Weighted and Time-Weighted Rates of Return, The Albright Fund, Step 1, printed p. 81.

"On 30 April, the net cash flow, $CF_1$, is EUR30 million."

Curriculum location: Money-Weighted and Time-Weighted Rates of Return, Exhibit 3 explanation, printed p. 82.

"includes one cash inflow of EUR2 million for the dividend received, cash outflows of EUR32 million for the dividend reinvested, the capital gains realized, and the additional capital contributions, respectively."

The case says the EUR2 million dividend and EUR10 million realized gain were immediately reinvested and not distributed to investors. Those events remain inside the fund. The only external cash flow on 30 April is the EUR20 million investor contribution.

Correct reading: From the investor perspective, use cash flows of −EUR100 million, −EUR20 million, EUR0, and EUR140 million. The four-month IRR is approximately 5.5838%; annualizing the unrounded IRR gives approximately 17.7041%, or 17.70%.

Using the printed −EUR30 million flow leads candidates to the wrong money-weighted return.

2. The Money-Weighted IRR Equation Starts at $t=1$ Instead of $t=0$

Curriculum location: Money-Weighted and Time-Weighted Rates of Return, The Albright Fund, Step 2 IRR equation, printed p. 82.

$0=\sum_{t=1}^{T}\frac{CF_t}{(1+r_{MW})^t}$

The next line of the curriculum's equation includes $CF_0/(1+r_{MW})^0$, so a summation beginning at $t=1$ excludes a cash flow that the expansion requires.

Correct reading: Write $0=\sum_{t=0}^{T}CF_t/(1+r_{MW})^t$.

The printed lower bound can make candidates omit the initial investment.

3. A Money-Weighted Return Is Incorrectly Described as Geometrically Linked

Curriculum location: Money-Weighted and Time-Weighted Rates of Return, Question Set 1, Question 3 solution, printed p. 86.

"To calculate the money-weighted rate of return, first tabulate the annual returns and investment amounts to determine the cash flows, and then calculate the periodic returns, geometrically linking them."

Geometrically linking subperiod returns is the time-weighted-return procedure. A money-weighted return is the single internal rate of return that sets the present value of the dated external cash flows to zero.

Correct reading: Tabulate the dated external cash flows and solve one IRR equation for the money-weighted return; do not geometrically link periodic returns.

The printed instruction can cause candidates to use the time-weighted algorithm on a money-weighted-return problem.

4. Normalized Weights Are Used as Though They Directly Produce an Index Level

Curriculum location: Index Definition and Calculation, Index Weightings, Equation 3, printed p. 90.

$Index\ value_t=\sum_{i=1}^{N}w_{i,t}\times P_{i,t}$

Curriculum location: Index Definition and Calculation, Market capitalization—weighted Index, printed p. 91.

$Index\ Value_t=\sum_{i=1}^{N}(w_{i,t}^{M}\times P_{i,t}).$

With the curriculum's normalized market-cap weights, multiplying each weight by its constituent price produces a weighted-average price, not the divisor-normalized index level. Exhibit 9 makes the mismatch visible: the weighted-price expression gives 34.1 while the stated index level is 100. Equation 5 then supplies the method-specific divisor formula.

Correct reading: Use normalized beginning weights for return contributions, $r_{index,t}=\sum_i w_{i,t-1}r_{i,t}$. Calculate an index level from the method's aggregate reference value and divisor, such as $V_{MCI,t}=\sum_iQ_iP_{i,t}/D_t$.

Candidates otherwise risk substituting a weighted-average price for an index level.

5. The Float-Adjusted Divisor Is Printed as 18,755 Instead of 18,775

Curriculum location: Index Definition and Calculation, float-adjusted market-capitalization index substitution, printed p. 94.

$18{,}755$

The exhibit and next line use 18,775. Numerically, $1{,}877{,}500/18{,}775=100$, whereas dividing by 18,755 does not produce the displayed initial value.

Correct reading: Use a divisor of 18,775 throughout the float-adjusted example.

The printed denominator prevents candidates from reproducing the stated index level.

6. Market-Capitalization Weights Are Said to Stay Constant as Prices Change

Curriculum location: Index Definition and Calculation, Market capitalization—weighted Index, primary advantage, printed p. 95.

"The primary advantage of using market-capitalization weighting is that even as the price of each security fluctuates, its share of the total market capitalization stays constant, which eliminates the need to rebalance—the need to adjust the weights of the constituents."

Relative market-capitalization weights change whenever constituent prices move by different percentages. What is automatic is the update of the weights under the market-cap rule; no trade is needed solely to restore those weights to a separate target.

Correct reading: Market-capitalization weights update automatically as prices change, but they do not remain constant. No target-restoring trade is required merely because relative prices move.

The printed claim can make candidates treat market-cap weights as invariant.

7. A Float-Adjusted Market-Cap Case Switches to Equal-Weighted Terminology

Curriculum location: Index Definition and Calculation, Market Capitalization—Weighted Index Calculations, solution introduction, printed p. 95.

"Finally, this adjusted value is used to calculate the total return of the equal-weighted index."

Curriculum location: Index Definition and Calculation, Market Capitalization—Weighted Index Calculations, Step 1 table, printed p. 96.

$n_i\times P_{i,t=1}$

Curriculum location: Index Definition and Calculation, Market Capitalization—Weighted Index Calculations, Step 3, printed p. 97.

$V_{EQI}=\frac{\sum_{i=1}^{N}n_i\times(P_i+Div_i)}{D}$

Curriculum location: Index Definition and Calculation, Market Capitalization—Weighted Index Calculations, Step 3 table, printed p. 97.

$n_i\times(P_{i,t=1}+Div_{i,t=1})$

The case uses float-adjusted share counts $f_iQ_i$, the market-cap divisor, and the $V_{MCI}$ result. The equal-weight label $V_{EQI}$ and equal-weight quantity $n_i$ belong to a different section. The numerical table cells likewise use $f_iQ_i$, not $n_i$.

Correct reading: Identify the result as the total return of the float-adjusted market-capitalization-weighted index. Use $f_iQ_iP_{i,t=1}$ for the Step 1 reference values, $V_{MCI}=\sum_i f_iQ_i(P_i+Div_i)/D$ for the Step 3 display, and $f_iQ_i(P_{i,t=1}+Div_{i,t=1})$ for the Step 3 reference values.

The printed label and formula can send candidates to the wrong index construction.

8. The Total-Return Formulas Omit Dividends

Curriculum location: Index Definition and Calculation, Market Capitalization—Weighted Index Calculations, Step 3 table, printed p. 97.

$\sum_{j=1}^{N}f_iQ_iP_{i,t=1}$

Curriculum location: Index Definition and Calculation, Market Capitalization—Weighted Index Calculations, Step 3 table, printed p. 97.

$V_{MCI}=\frac{\sum_{i=1}^{N}f_iQ_iP_{i,t=1}}{D}$

Curriculum location: Index Definition and Calculation, Market Capitalization—Weighted Index Calculations, Step 4, printed p. 97.

$\sum_{i=1}^{N}w_ir_i=\sum_{i=1}^{N}w_i\frac{P_{i,1}-P_{i,0}}{P_{i,0}}$

The Step 3 values 2,349,750 and 125.15 include dividends, while the row formulas are price-only. Step 4 likewise calls the components total returns and substitutes dividend-inclusive percentages, but its symbolic expression omits $Div_{i,1}$.

Correct reading: Use $\sum_i f_iQ_i(P_{i,1}+Div_{i,1})$ for the aggregate total-return value and $V_{MCI}=\sum_i f_iQ_i(P_{i,1}+Div_{i,1})/D$. At the component level, use $r_{i,total}=(P_{i,1}+Div_{i,1}-P_{i,0})/P_{i,0}$.

Candidates following the printed formulas would calculate price returns while believing they had calculated total returns.

9. A 50% Decline at a 20% Weight Has a 10-Point Impact, Not a 20-Point Impact

Curriculum location: Index Definition and Calculation, Equal-Weighted Index, Exhibit 14 discussion, printed p. 102.

"Conversely, a 50% decrease in Security A (the largest market capitalization) would result in a 20% impact on the equal-weighted index, but its influence on the market capitalization—weighted index would be more significant."

At a 20% weight, a −50% constituent return contributes −10 percentage points, not −20.

Correct reading: A −50% return for a 20%-weighted security lowers the equal-weighted index by 10 percentage points.

The printed statement can make candidates confuse a constituent weight with its return contribution.

10. The Equal-Weight Rebalancing Trades Reverse Securities D and E

Curriculum location: Index Definition and Calculation, Knowledge Check: Index Calculations, Question 2 solution, printed p. 104.

"If the equal-weighted index is rebalanced, securities that have increased in value relative to others in the index (such as Securities B and D) will be sold off, and securities that have underperformed (such as Securities A, C, and E) will be bought to maintain equal weighting."

The example's own total returns show that B and E outperformed the equal-weighted portfolio, while A, C, and D underperformed it. The printed trade list reverses D and E.

Correct reading: To restore equal weights after the displayed returns, sell B and E and buy A, C, and D.

The printed list can cause candidates to trade in the wrong direction for two constituents.

11. Securities A and B Total 59.1%, Not More Than 75%

Curriculum location: Index Definition and Calculation, Comparing Index Performance, concluding interpretation, printed p. 114.

"In a market capitalization—weighted index, securities with larger market capitalizations, like Securities A and B, which initially make up over 75% of the total market capitalization, determine the index’s performance."

The displayed float-adjusted weights for A and B are 39.9% and 19.2%, totaling 59.1%. Adding C's 25.6% produces 84.7%.

Correct reading: Securities A, B, and C initially make up 84.7% of the float-adjusted market capitalization and therefore dominate this example's market-cap-weighted performance.

The printed percentage gives candidates the wrong concentration arithmetic.

Complete Module 3 Body-Text Errata Index

Errata scope

• Curriculum: CFA Level I 2027 Curriculum
• Volume: Volume 1, Quantitative Methods
• Module: Module 3, Benchmarking Returns
• Topics covered: Money-Weighted and Time-Weighted Rates of Return; Index Definition and Calculation
• Source reviewed: The official 48-page Module 3 curriculum PDF, with teaching content on printed pp. 73–115

The table below lists all confirmed source-authored body-text errors identified in the two in-scope topics. Embedded topic Question Sets and Knowledge Checks through printed p. 115 are included. Import-only defects and end-of-module Practice Problems beginning on printed p. 116 are excluded.

Page references use the printed curriculum page numbers.

References

• CFA Institute: Rates and Returns
• S&P Dow Jones Indices: Index Mathematics Methodology
• S&P Dow Jones Indices: Methodology Matters

This article is an independent candidate-focused analysis of confirmed errors in the CFA Level I 2027 Curriculum, Volume 1 Quantitative Methods, Module 3 Benchmarking Returns. It is not an official curriculum errata notice.