SIE: 8.4.10. Performance Measures

8.4.10.  Performance Measures

When investing, it is critical to assess performance. How well has an investment done over time? How does that compare to keeping the money under a mattress? The best way to evaluate the performance of an investment is to look at how much money the investment has earned over a specific period of time.

The returns an investor makes include both the appreciation of value over time (also called capital gains) and the dividends or interest earned from the investment. Remember that the appreciation is only realized when the investment is sold. Until that time, it is considered an unrealized gain.

appreciation = current value – original value

dividends and interest = all the dividends or interest earned over the time period.

Total return includes appreciation, as well as dividends and interest (income) divided by the value of the original investment. If you want to annualize the investment, simply divide by the number of years that you had the investment.

Example Question 1

Jake bought 1,000 shares of XYZ C