Introduction

This unit covers how to measure, compare, and track what you actually earn (or lose) on your investments.

Exam Weight: Part of 23 questions (31% of exam)

What You'll Learn

• The four building blocks of return: interest, dividends, realized gains, and unrealized gains
• Cash dividends vs. stock dividends and how each affects taxes and cost basis
• The four key dates in the dividend process, especially the ex-dividend date
• Current yield, yield to maturity, yield to call, total return, and basis points
• How to track cost basis for tax purposes using FIFO, specific identification, and average cost
• The major market indices, how they're weighted, and why you can't invest directly in an index

Why This Matters

Investment return concepts appear throughout the securities industry. You will need to calculate bond yields, determine when a client is entitled to a dividend, and compare portfolio performance against a benchmark. The Securities Industry Essentials (SIE) exam tests your ability to distinguish between different types of returns, apply the correct yield measure, and understand the tax implications of various distributions.

Let's start with the building blocks of investment return.