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Basic Question 4 of 7
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%
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 |
I used your notes and passed ... highly recommended!
Lauren
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.