- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 2. Security Market Indexes
- Subject 1. Index Definition and Calculations of Value and Returns
CFA Practice Question
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
Correct Answer: A
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 |