knowledge topics
Measurement of Investment Return
KNOWLEDGE EXPECTED OF: Both CFP® Professionals and QAFPTM Professionals
- Define investment return.
- Define variables that impact the calculation of investment return.
- Amount invested / Face value of investment
- Contributions
- Withdrawals
- Costs and fees
- Investment income received
- Capital gain / loss
- Compounding period
- Compounding frequency
- Exchange rate
- Explain how each variable used in the calculation of investment return affects investment return.
- Define types of investment returns, such as:
- Nominal
- Real
- Effective annual return
- Expected
- Realized
- After-tax
- Real-after-tax
- Risk-free
- Holding period
- Geometric
- Arithmetic
- Dollar-weighted
- Time-weighted
- Explain each type of investment return.
- Compare types of investment returns, such as:
- Nominal return versus real return
- Expected return versus realized return
- Geometric return versus arithmetic return
- Dollar-weighted return versus time-weighted return
- Interpret the return calculated for an investment.
- Identify that past performance for any investment is not indicative of future performance.
Glossary of Verbs (mouse over to see definition)
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Define
To state exactly the meaning of
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Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
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Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
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Compare
To note the similarities and differences between two or more things
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Estimate
To determine an approximate value for
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Calculate
To find the value using mathematics
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Convert
To change from one form or purpose to another
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Evaluate
To reach a conclusion or make a judgement through careful study
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Interpret
To give the meaning of / to construe or understand / to translate orally
Read more about the Taxonomy used in the FP-BoK
