Question of the Week

Which of the following statements is (are) true with respect to the calculation of returns of composites in accordance with the AIMR-GIPS standards?

I. Results that cover a period of less than a year must be annualized.
II. Geometric return calculations must be used for multi-period results.
III. Cash basis must be used to calculate returns from securities that accrue interest.
IV. The weights used to calculate composite returns are based on the average asset values over the measurement period.

a) II only
b) I, II, III and IV
c) II, III and IV only
d) I, III and IV only

Answer:

The correct answer is: a)

(I) is incorrect because results that cover a period of less than a year must "not" be annualized. (III) is incorrect because accrual accounting must be used to calculate returns from securities that accrue interest. (IV) is incorrect because the weights used to calculate composite returns are based on the beginning of period asset values.

2005 LOS: 1.4 -1.5.e