- CFA Exams
- CFA Exam: Level I 2021
- Study Session 12. Equity Investments (1)
- Reading 37. Security Market Indices
- Subject 1. Index Definition and Calculations of Value and Returns

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**CFA Practice Question**

If a security market index has a price return of 10% for period 1 and 15% for period 2, its price return for the 2 periods should be ______.

B. 25%

C. 26.5%

A. 12.5%

B. 25%

C. 26.5%

Correct Answer: C

(1 + 10%) (1 + 15%) - 1 = 0.265

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**User Contributed Comments**
10

User |
Comment |
---|---|

dipu617 |
How to do it in BAII plus? |

michlam14 |
i used the formula for time weighted return ((1+.1) *(1+.15))to the power of 1/2 , then subtract 1 = 12.5% why am i wrong?? |

gulfa99 |
question is 2 period return not annualized return |

gill15 |
Mich What your doing is finding the semi annual period rate essentially (1 + j)^2 = (1.1)(1.15) and solving for j. Not right. |

dmfz |
Just do it with $1. 1st period dollar grows to $1.10, 2nd period $1.10 goes to $1.265 |

TheProfet |
The words here are important. If its an annual return, you use the geometric average formula. If the return is periodic, then you simply take 1 +rate s, multiply them and subtract one. |

CFAToad |
So you multiply instead of add because these are prices and reinvested income, correct? |

chesschh |
has to be more than 25% since its reinvested |

khalifa92 |
REMINDER multiple periods for both price return and total return are calculated geometrically. |

cosmos1994 |
Imagine you invest 1 into index at period |