Total

Lesson

Total return is a comprehensive measure of an investment's performance, considering capital gains and income generated.

Practice Question #1

Which of the following best describes total return?

A) The increase in the value of an investment over time

B) The income generated by an investment

C) The overall return on an investment, including both capital gains and income

D) The return on an investment expressed as an annual percentage rate

Select an option above to see an explanation here.

A) This describes capital gains, not total return. B) This describes income, not total return. C) Total return is the overall investment return, including capital gains and income. D) This describes annualized return, not total return.

Terms

Total return:: The overall return on an investment, including capital gains and income generated.
Capital gains:: The increase in the value of an investment over time.
Income:: Payments from an investment, such as dividends or interest.

Practice Question #2

What is the main difference between price return and total return?

A) Price return includes income, while total return does not.

B) Price return only considers capital gains, while total return includes both capital gains and income.

C) Price return is expressed as an annual percentage rate, while total return is not.

D) Price return accounts for the timing of cash flows, while total return accounts for the size of cash flows.

Select an option above to see an explanation here.

A) This is incorrect; total return includes income, while price return does not. B) Price return only considers capital gains, while total return includes capital gains and income. C) This describes the difference between annualized and total returns, not price and total returns. D) This describes the difference between time-weighted and money-weighted returns, not price and total returns.

Do Not Confuse With

Total return vs. price return:: Total return includes capital gains and income, while price return only considers capital gains.

Practice Question #3

Which of the following measures of investment performance accounts for the level of risk associated with the investment?

A) Total return

B) Annualized return

C) Time-weighted return

D) Risk-adjusted return

Select an option above to see an explanation here.

A) Total return does not account for the level of risk associated with the investment. B) Annualized return does not account for the level of risk associated with the investment. C) Time-weighted return does not account for the level of risk associated with the investment. D) Risk-adjusted return is a measure of investment performance that considers the level of risk associated with the investment.

Historical Example

In the late 1990s, many investors focused solely on the price returns of technology stocks, ignoring the income generated by more traditional investments like bonds. This led to a technology bubble that eventually burst, causing significant losses for those who had not considered the total return of their investments.