NASAA Series 66 Uniform Combined State Law ExaminationClient Investment Recommendations and StrategiesMedium
A client has a portfolio valued at $500,000. Over the past year, the portfolio generated $15,000 in dividends and interest, and its market value increased by $25,000. What is the total return of the client's portfolio for the year?
- A5.0%
- B10.0%
- C8.0%
- D3.0%
Show answer & explanationAnswer & explanation
Correct answer: C. 8.0%
Total return is calculated as (Income + Capital Appreciation) / Initial Portfolio Value. In this case, ($15,000 + $25,000) / $500,000 = $40,000 / $500,000 = 0.08 or 8.0%.
Why the other options are wrong
- A. This only accounts for capital appreciation ($25,000/$500,000 = 5%).
- B. This is an incorrect calculation.
- D. This only accounts for income ($15,000/$500,000 = 3%).
Total Return
A measure of an investment's performance that includes both capital appreciation (or depreciation) and any income generated (dividends, interest).
- Comprehensive measure of investment performance.
- Calculated as (Income + Capital Gain) / Initial Investment.
- Expressed as a percentage.
Memory trick: Performance: How much wealth did you gain from all sources?