Question

Market convention is that comparative index returns, should include total return adjustments; assuming all dividend payouts were reinvested in fractional new shares of the company at the price on the date of the dividend.

a. true
b. false

Answer 1

The accurate response to the statement is indeed "true." Comparative index returns should include total return adjustments, assuming all dividend payouts were reinvested in fractional new shares of the company at the price on the date of the dividend.

Step-by-step explanation:

According to market convention, comparative index returns typically involve total return adjustments, assuming that all dividend payouts were reinvested in fractional new shares of the company at the price on the date of the dividend. This means that when calculating comparative index returns, the dividends paid by the companies in the index are taken into account and reinvested in the same companies at the current stock price. Including these total return adjustments provides a more accurate representation of the performance of the index.

For example, if a company in the index pays a dividend of $1 per share and the stock price is $10 at the time of the dividend, the dividend is reinvested in fractional new shares of the company at the current stock price, let's say $12. This adjustment reflects the additional return that would have been earned by reinvesting the dividend back into the company.