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We have designed and constructed a prototype model of a new polarization‐modulation spectrometer for simultaneous circular dichroism (CD) and optical rotary dispersion (ORD) measurements based on the results of our preliminary experiments. The Mueller matrix approach is used to analyze and evaluate important factors determining the performance of our new spectrometer. The CD and ORD base‐line shifts are found to be an indicator representing the total performance of the spectrometer. The capability of our spectrometer in measuring CD and ORD signals is equal to that of commercially available CD and ORD spectropolarimeters in the wavelength range from 220 to 700 nm. Furthermore, our spectrometer has much faster speed of ORD measurement than the ORD spectropolarimeter of null‐point detection type. Our spectrometer has also high sensitivity to both linear birefringence and linear dichroism measurements.