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Total Return Index

C

cjno1

Member
In revision book 4, there are two past paper questions (6 and 13) which have basically exactly the same format:

"Give a generalised formula for a total return index suitable for property performance measurement purposes."

But the solutions give two totally different answers. Answer 6 points to the core reading for an incremental total return index (TRI[t] = TRI[t-1] * . . . ), and answer 13 first defines an arithmetic weighted capital index, then talks about how you would make it into a total return index.

Are they both acceptable answers given how differently they've been approached?
 
confusing

Hi
I see what you mean. There are two interpretations of "construct an index". One is the construction of the capital index, and the second is converting the capital index into a total return index. the examiner has used one for each of them without knowing. So the answer to one is the formula for a weighted arithmetic index and the second is the method of contructing a total return index from a normal index.
How to deal with this in future? I would be tempted to give both if it comes up again to cover all angles. This is generally good technique if there is a question that can be interpreted in two ways.
 
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