Sandor Company owns an investment portfolio of available-for-sale securities. During 2016, Sandor received $3,000 of dividends and $1,000 of interest from the securities in the portfolio. The fair value of the portfolio on January 1, 2016 was $86,000 and the fair value of the portfolio at December 31, 2016 was $98,000. The economic return from investing ratio is closest to:

Question

Quizplus · Accepted Answer

The economic return from investing ratio can be calculated using the following formula:

Gain (or Loss) from Sale of Investment + Dividends + Interest / Beginning Investment Value

Using the given information, we can calculate the economic return from investing ratio as follows:

Gain (or Loss) from Sale of Investment = Fair value at end of period - Fair value at beginning of period = $98,000 - $86,000 = $12,000

Economic return from investing ratio = ($12,000 + $3,000 + $1,000) / $86,000 ≈ 0.186 or 18.6%,

Therefore, the closest option is C)18.6.

Sandor Company Owns an Investment Portfolio of Available-For-Sale Securities