SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 37: Answer and Explanation

Question: 37

Which of the following is the most accurate calculation of return on investment?

• A. Difference between the sales proceeds and the cost when purchased
• B. Cash received while the security is held, plus the difference between the sales proceeds and the purchase price, less any commissions, adviser fees, custody fees and recordkeeping costs
• C. Cash received while the security is held, plus the difference between the sales proceeds and the purchase price, less any commissions, adviser fees, custody fees and recordkeeping costs less estimated income tax
• D. Cash received while the security is held, plus the difference between the sales proceeds and the purchase price, less any commissions, adviser fees, custody fees and recordkeeping costs less actual income tax

Correct Answer: D

Explanation:

D: Choice D is correct, as it includes the actual income tax, which may not be calculated until the investment is sold and all revenues and costs are known. Choices A and B are incorrect, as these have only some of the factors considered in the calculation. Choice C is incorrect, as it is using a contingent income tax calculation, which may be the best tax calculation that is reasonably available prior to all transactions being complete.