CFA Practice Question

There are 275 practice questions for this study session.

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.

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 simple as that
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