• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

September 2014 - Question 6(iii)

K

KevinB

Member
I'm confused by this question. Specifically how the solution calculates the investment income if we had invested in the index.

To calculate income it takes the market value at the start of the quarter increases to the end of the quarter by the capital index and calculates the dividend. eg Q4 is 4,500 x (1,680/1797) x 4.2% x 0.25 = 44.2

My problem is why do we use the Market Value of 4,500? If it was invested in line with the index from the start of the year this would be different at the start of Q3.
 
Dividend yields are traditionally quoted in terms of the income that has been received over a period divided by the value of the fund at the end of that period. Such a definition of dividend yield is given in the Course Notes in Chapter 15, Page 11.

So, in this case, to derive the income that would have been received in Q4 had the fund of $4,500 (at the start of Q4) been invested in the index over that quarter, we need to calculate the fund value at the end of Q4 (had $4,500 been invested in the index over that quarter), and multiply that end value (of $4,500 x 1680 / 1,797) by the index's dividend yield quoted at that time (i.e. at the end of Q4) of 4.2%.
 
You must log in or register to reply here.
Back
Top