- CFA Exams
- CFA Level I Exam
- 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**

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

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**User Contributed Comments**
4

User |
Comment |
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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 |