Lesson 1 of 5 11–14% of the exam

You are reading the 2026 curriculum (exams up to November 2026). Sitting in February 2027 or later? Go to the 2027 Equities guide.

By Daniil Tarakanov Updated Oct 16, 20262026 curriculum

Index value, price return and total return

A security market index is a group of securities whose combined value represents a market. Its price return counts only price changes; its total return also counts dividends and interest reinvested. Over several periods, chain the returns: V_T = V₀ × (1 + R₁)(1 + R₂)…

6 min cram, 24 min full read. Based on the 2026 CFA® Program Level I curriculum, Equity Investments, Learning Module 2. This is the 2026 version of the lesson. Sitting in February 2027 or later? Read the updated 2027 version.

Tailor this to you: take the self-assessment

Before this: Holding period return, Market Organization and Structure

On the exam

Describe a security market index
Calculate and interpret the value, price return, and total return of an index

Describe a security market index and calculate and interpret its value, price return and total return. Expect a one-period total return from index levels plus income, or a multi-period index value.

How deeply to learn each part

Know the idea: Understand it in general. It frames other topics, but you will not calculate with it.
Use it: Understand it well enough to solve a question with it. Recognize when it applies.
Memorize: Learn it by heart. The exam will not give it to you.

You know this one. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still do.

You tested strong here. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still know it.

What is a security market index?

A security market index is a group of securities with a rule for combining them into one number, so that the number stands for the performance of a market. The market can be a country, a sector, an investing style or a whole asset class. The securities in the group are its constituent securities .

Think of an index as a recipe: a list of ingredients and a method for blending them. Change either one and you have a different index, even when both claim to track “the same market”.

Most index providers publish two versions from the same constituents. The price return index , also called a price index , tracks price changes only. The total return index tracks price changes plus the income the constituents pay (dividends for shares, interest for bonds), treated as reinvested. Both start at the same level and drift apart as income accumulates.

Two returns from the same constituents

Return on an indexone set of securities, two published versions

Price return Memorize price changes only, shown by the price return index
- Also called price index
Total return Memorize price changes plus income, shown by the total return index
- Price return change in level ÷ start level
- Income return dividends and interest ÷ start level

InteractivePrice return index vs total return index

Try this 0 of 3

Open the One period tab and split the 6.30% total return
Set the income yield to 0% and watch the two lines
Make the price index end below 1,000 while the total return index still ends above it

Average annual price return5.00%

Income (dividend) yield2.00%

Price return index1,628.89

Total return index1,967.15

Gap (points)338.26

Total return index
Price return index

Year	Price	Total	PR index	TR index
1	5.00%	7.00%	1,050.00	1,070.00
2	5.00%	7.00%	1,102.50	1,144.90
3	5.00%	7.00%	1,157.63	1,225.04
4	5.00%	7.00%	1,215.51	1,310.80
5	5.00%	7.00%	1,276.28	1,402.55
6	5.00%	7.00%	1,340.10	1,500.73
7	5.00%	7.00%	1,407.10	1,605.78
8	5.00%	7.00%	1,477.46	1,718.19
9	5.00%	7.00%	1,551.33	1,838.46
10	5.00%	7.00%	1,628.89	1,967.15

Show working

Each year: price return index × (1 + price return); total return index × (1 + price return + income yield).

Price return index = 1,000.00 × 1.0500^10 = 1,628.89

Total return index = 1,000.00 × 1.0700^10 = 1,967.15

On your calculator

2NDCLR TVM
10N
7I/Yprice return + yield
1000+|-PV
0PMT
CPTFV1,967.15, the total return index

2ND second function (the shifted label above a key) · CLR TVM clear the time value of money keys · N number of periods · I/Y interest rate per year (per period when P/Y is 1) · +|- change sign · PV present value · PMT payment · CPT compute · FV future value

fCLEAR FIN
10n
7iprice return + yield
1000CHSPV
0PMT
FV1,967.15, the total return index

f gold shift key · CLEAR FIN clear the financial registers · n number of periods · i interest rate per period · CHS change sign · PV present value · PMT payment · FV future value

Same shares, two indexes: the total return index pulls ahead every year income is paid.

Exam tip When a question says “index” and gives dividends or interest, check which version it wants. Price return ignores the income. Total return includes it.

How do you calculate an index return over one period?

Take the change in the index level, add any income for a total return, and divide by the starting level. The price return uses the price return index level only. The total return adds the income paid by the constituents during the period, expressed in index points.

Index price return Memorize

PR = \frac{V_1 - V_0}{V_0}

Index total return Memorize

TR = \frac{V_1 - V_0 + I}{V_0}

The exam also turns this around: it gives the return and asks for the ending level or the income.

Rearrange itIndex total return: solve for any input

The question asks for

An index starts the year at 1,250.00 and ends at 1,310.00. Its constituents paid income equal to 18.75 index points. The index's total return is closest to:

Index level at the start, V₀Index level at the end, V₁Income, in index points

T R = \frac{V _{1} - V _{0} + I}{V _{0}}

(1,310.00 − 1,250.00 + 18.75) ÷ 1,250.00 = 6.30%

Total return, TR6.30%

On your calculator

1310−1250+18.75=÷1250=0.063

1310ENTER1250−18.75+1250÷0.063

ENTER enter (on the HP, puts the number on the stack)

An index return is also the weighted average of its constituents’ returns. The weights are the constituents’ shares of the index at the start of the period.

Index return from constituent returns Use it

R_{index} = \sum_i w_i R_i

How do you find an index value over several periods?

Multiply the starting level by a growth factor, 1 plus the return, for each period. The formula is the same compounding you used for holding period returns.

Multi-period index value Memorize

V_T = V_0 \,(1 + R_1)(1 + R_2)\cdots(1 + R_T)

Rearrange itMulti-period index value: solve for any input

The question asks for

An index stands at 1,000.00. Over three years its returns are 5.00%, -3.00% and 8.00%. The index level at the end of year 3 is closest to:

Starting index level, V₀Return in year 1%Return in year 2%Return in year 3%

V_{3} = V_{0} (1 + R_{1}) (1 + R_{2}) (1 + R_{3})

1,000.00 × 1.05 × 0.97 × 1.08 = 1,099.98

Index level after year 3, V₃1,099.98

On your calculator

1000×1.05×0.97×1.08=

1000ENTER1.05×0.97×1.08×

ENTER enter (on the HP, puts the number on the stack)

The same rule works on a total return index, using total returns for each period.

Go deeper Why the total return index matters over the long run

Dividends and interest are a large part of what long-term investors earn. A price return index ignores all of it, so over decades it understates what a holder of the constituents actually received. A 2% income yield on top of a 5% price return makes the total return index roughly 7% a year, and after ten years the gap between the two is wide. For comparing a portfolio with an index, use the version that matches the portfolio: a fund that reinvests income should be set against a total return index.

Some providers publish gross and net total return indexes. Gross assumes the full dividend is reinvested. Net deducts the withholding tax a typical foreign investor would pay on it, so a net index sits a little below the gross one.

Memorize this

MemorizeIndex return measures

Measure	Counts	Formula
Price return	price changes only	$(V_1 - V_0) \div V_0$
Total return	price changes + income	$(V_1 - V_0 + I) \div V_0$
Several periods	chained growth factors	$V_0 \prod (1 + R_t)$

Memory hook Total = price + income, always over the START level. Several periods multiply; they never add.

Know it cold Divide by the starting value. Total return is at least the price return whenever income is paid.

Two returns from the same constituents

Return on an indexone set of securities, two published versions

Price return Memorize price changes only, shown by the price return index
- Also called price index
Total return Memorize price changes plus income, shown by the total return index
- Price return change in level ÷ start level
- Income return dividends and interest ÷ start level

Index price return

PR = \frac{V_1 - V_0}{V_0}

Quick example

A price return index moves from 2,000 to 2,060. (2,060 − 2,000) ÷ 2,000 = 3.00%.

On your calculator

2060−2000=÷2000= 0.03

2060ENTER2000−2000÷ 0.03

ENTER enter (on the HP, puts the number on the stack)

Index total return

TR = \frac{V_1 - V_0 + I}{V_0}

Quick example

Index 2,000 to 2,060 with 24 points of income. (2,060 − 2,000 + 24) ÷ 2,000 = 4.20%.

On your calculator

2060−2000+24=÷2000= 0.042

2060ENTER2000−24+2000÷ 0.042

ENTER enter (on the HP, puts the number on the stack)

Index return from constituent returns

R_{index} = \sum_i w_i R_i

Quick example

Weights 40%, 40%, 20% and returns 5%, 1%, −3%. 0.40 × 5 + 0.40 × 1 + 0.20 × (−3) = 1.80%.

On your calculator

(0.4×5)+(0.4×1)−(0.2×3)= 1.8

0.4ENTER5×0.4ENTER1×+0.2ENTER3×− 1.8

ENTER enter (on the HP, puts the number on the stack)

Multi-period index value

V_T = V_0 \,(1 + R_1)(1 + R_2)\cdots(1 + R_T)

Quick example

An index at 500 returns 6%, −8% and 4%. 500 × 1.06 × 0.92 × 1.04 = 507.10, not 500 × 1.02 = 510.

On your calculator

500×1.06×0.92×1.04= 507.104

500ENTER1.06×0.92×1.04× 507.104

ENTER enter (on the HP, puts the number on the stack)

How it is asked

Total return from levels and income

Index 1,250.00 to 1,310.00 with 18.75 points of income. Total return?

(60.00 + 18.75) ÷ 1,250.00 = 6.30%. Traps: 4.80% (price return), 6.01% (divides by 1,310).
Value after several years

Index 800 returns 4%, −6%, 7%. Level after year 3?

800 × 1.04 × 0.94 × 1.07 = 836.83. Trap: 800 × 1.05 = 840 (summed returns).
Price index versus total return index

Over a long period, which version of the same index ends higher?

The total return index, provided the constituents pay income.

Exam traps

Leaving income out of total return, or putting it into price return. Price return never contains dividends or interest.
Adding period returns instead of compounding them. 5%, −3% and 8% do not make 10%.
Dividing by the ending value instead of the starting value.

Checkpoint

3 exam-style questions. About 90 seconds each.

1An index starts the year at 1,250.00 and ends at 1,310.00. Its constituents paid income equal to 18.75 index points. The index's total return is closest to:
2A price return index stands at 800.00. Over the next three years its price returns are 4%, −6% and 7%. Its value at the end of year 3 is closest to:
3Compared with the price return version of the same index, a total return index over a long period most likely:

Key takeaways

Price return: prices only. Total return: prices plus reinvested income.
Index return is the weighted average of constituent returns, with weights at the start of the period.
Chain multi-period returns with growth factors; never add them.
Divide every return by the starting level.

Index price return

PR = \frac{V_1 - V_0}{V_0}

Quick example

A price return index moves from 2,000 to 2,060. (2,060 − 2,000) ÷ 2,000 = 3.00%.

On your calculator

2060−2000=÷2000= 0.03

2060ENTER2000−2000÷ 0.03

ENTER enter (on the HP, puts the number on the stack)

Index total return

TR = \frac{V_1 - V_0 + I}{V_0}

Quick example

Index 2,000 to 2,060 with 24 points of income. (2,060 − 2,000 + 24) ÷ 2,000 = 4.20%.

On your calculator

2060−2000+24=÷2000= 0.042

2060ENTER2000−24+2000÷ 0.042

ENTER enter (on the HP, puts the number on the stack)

Index return from constituent returns

R_{index} = \sum_i w_i R_i

Quick example

Weights 40%, 40%, 20% and returns 5%, 1%, −3%. 0.40 × 5 + 0.40 × 1 + 0.20 × (−3) = 1.80%.

On your calculator

(0.4×5)+(0.4×1)−(0.2×3)= 1.8

0.4ENTER5×0.4ENTER1×+0.2ENTER3×− 1.8

ENTER enter (on the HP, puts the number on the stack)

Multi-period index value

V_T = V_0 \,(1 + R_1)(1 + R_2)\cdots(1 + R_T)

Quick example

An index at 500 returns 6%, −8% and 4%. 500 × 1.06 × 0.92 × 1.04 = 507.10, not 500 × 1.02 = 510.

On your calculator

500×1.06×0.92×1.04= 507.104

500ENTER1.06×0.92×1.04× 507.104

ENTER enter (on the HP, puts the number on the stack)

Next lesson Price-weighted and equal-weighted indexes

Questions about this lesson?

Where this comes back

Price-weighted and equal-weighted indexes Security Market Indexes
Portfolio Risk and Return: Part II (CAPM and Performance Measures) Portfolio Construction

Questions candidates ask

What is the difference between a price return index and a total return index?

Both hold the same securities. The price return index counts only price changes. The total return index also reinvests dividends and interest, so it grows faster whenever income is paid.

How do you calculate an index's total return?

Add the price change and the income received, then divide by the starting index value. A level that rises from 1,250 to 1,310 with 18.75 points of income returns 78.75 ÷ 1,250 = 6.30%.

How do you calculate an index value over several years?

Multiply the starting value by (1 + return) for each year in turn. Index 1,000 with returns of 5%, −3% and 8% ends at 1,000 × 1.05 × 0.97 × 1.08 = 1,099.98.

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