SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 3: Answer and Explanation

Question: 3

Which of the following will calculate the return on an investment?

• A.
• B.
• C.
• D.

Correct Answer: B

Explanation:

B: Choice B appropriately displays the factors in calculating return on an investment. Choice A duplicates the subtraction of the amount invested, which is already subtracted from the sales proceeds to obtain realized gain or loss. Choice C uses sales proceeds as the denominator, which is incorrect. Choice D would in some cases have the same result as B, when no cash is received while the investment is held, such as in the case of a zero-coupon bond. However, it is not a reliable formula for investments producing cash during the holding period.