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Basic Question 3 of 7
Assume that at inception the values of the price and total return versions of an index are equal. As time passes, the value of the total return index will ______ the value of the price return index by a(n) ______ amount.
B. exceed; decreasing
C. fall short of; decreasing
A. exceed; increasing
B. exceed; decreasing
C. fall short of; decreasing
User Contributed Comments 4
| User | Comment |
|---|---|
| johntan1979 | With the assumption that all constituent securities continues to pay dividends and the dividend amount either stays the same or increases. |
| geofin | It's the compound interest on reinvested dividends that contributes the most to the "increasing" part of the answer... |
| ascruggs92 | johntan1979, that doesn't even have to be assumed. For example, every stock in the S&P 500 does not pay dividends, and there is no guarantee that the ones that do will continue to do so in the future. However, it is a virtual certainty that there will always be some dividend paying stocks in the S&P 500, therefore the statement above holds true. |
| chesschh | Capital Appreciation....as simple as that |
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Learning Outcome Statements
describe a security market index
calculate and interpret the value, price return, and total return of an index
CFA® 2024 Level I Curriculum, Volume 3, Module 2.