Securities Industry Essentials (SIE) ExamUnderstanding Products and Their RisksHard
A client invested $10,000 in a growth stock. Over the next year, the stock appreciated by 15%, and the client received $200 in dividends. The client then sold the stock for $11,500. What is the client's total return on investment?
- A$200
- B$1,700
- C$1,500
- D$1,300
Show answer & explanationAnswer & explanation
Correct answer: B. $1,700
Total return includes both capital gains and any income received. The capital gain is the selling price minus the purchase price ($11,500 - $10,000 = $1,500). The total return is the capital gain plus dividends received ($1,500 + $200 = $1,700).
Why the other options are wrong
- A. This only accounts for the dividends received, not the capital appreciation.
- C. This only accounts for the capital appreciation, not the dividends received.
- D. This calculation is incorrect and does not represent total return.
Total Return on Investment
The sum of all income received from an investment (e.g., dividends, interest) plus any capital gains (or minus capital losses).
- Combines income and capital appreciation
- Expressed as a dollar amount or a percentage
- Measures the overall profitability of an investment
- Important metric for comparing investment performance
Memory trick: Total Return: Capital Gain + Income = Your Gain.