Equity Investments Q90

90The following information is available for an index:
Value of the index as of December 31, 2012: 1,000
Interest income over the year 2012: 45.50
Dividend income over the year 2012: 12.00
Total return of the index over the year 2012: -3.50%
The value of the index as of January 1, 2012 is closest to:

Option : C
Explanation : The total return of an index is the price appreciation, or change in the value of the price return index, plus income (dividends and/or interest) over the period, expressed as a percentage of the beginning value of the price return index.
TRI = (V PRI1 - V PRI0 + Inc1) / V
Where TRI = the total return of the index portfolio (as a decimal number) VPRI1= the value of the price return index at the end of the period
VPRI0 = the value of the price return index at the beginning of the period
Inc1 = the total income (dividends and/or interest) from all securities in the index held over
the period -3.5% = (1000 - VPRI0 + 45.5 12) / VPRI0;
VPRI0 = (1000 + 45.5 + 12) / (1 - 3.5%) = 1,096.

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