Which of the following rules apply for calculations under the Performance Presentation Standards?
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A. B. C. D.B
All of these answers are general rules applying to calculation of returns under the PPS.
Under the Performance Presentation Standards, several rules apply for calculations. Let's go through each answer choice and explain whether it is a valid rule or not:
A. Accrual accounting must be used for fixed-income securities. Accrual accounting refers to the recognition of revenues and expenses when they are earned or incurred, regardless of when the cash is actually received or paid. This answer suggests that accrual accounting should be used specifically for fixed-income securities. However, this is not a valid rule under the Performance Presentation Standards. The choice of accounting method for fixed-income securities depends on various factors, including industry practices, regulatory requirements, and the specific objectives of the presentation.
B. All of these answers. This answer choice suggests that all the provided answers are valid rules under the Performance Presentation Standards. However, this is incorrect since not all the answers are valid rules. Therefore, this answer choice is not correct.
C. Total return, including realized and unrealized gains and losses, must be used. This answer choice is a valid rule under the Performance Presentation Standards. Total return refers to the overall gain or loss generated by an investment, considering both income (such as interest or dividends) and capital appreciation (realized and unrealized gains or losses). Including both realized and unrealized gains and losses provides a comprehensive view of the investment's performance.
D. Time-weighted rate of return must be used. This answer choice is also a valid rule under the Performance Presentation Standards. The time-weighted rate of return measures the compound rate of growth of a portfolio over a specific period, excluding the impact of external cash flows. It is a preferred method for measuring the performance of investment portfolios because it eliminates the distorting effect of cash inflows and outflows.
Therefore, the correct answer is option D: Time-weighted rate of return must be used, as it is a valid rule under the Performance Presentation Standards. Option C is also a valid rule, but it does not encompass all the answers provided in the question.