The M2M method of total return is very difficult and not-so-intuitive. According to my logic and analysis, the M2M is actually the SECOND DERIVATIVE since you’re looking at the CHANGE in the change in market-cost of a security. I have a question: In the FSA book, on page 58, problem 1E: Calculate Bart’s total investment return (mark-to-market basis) on each investment for 2001. WHY IS THIS DONE MUCH DIFFERENTLY THAN THE EXAMPLE GIVEN ON PAGE 22, WHICH TAKES THE DIFFERENCE IN THE MARKET VALUE - COST? When do you apply the M2M method and when do you *not* apply it?
these are freebie pts on the exam. Year 1 Fair Value - Cost = MVA Year 2 Fair Value - Cost = MVA The change in MVA from year 1 to year 2 is what you include in your mark to mkt calc. Which makes sense…if you have an unrealized gain of $500 in year 1 and an unrealized gain of $300 in year 2, then you essentially peed away $200 by not locking in your gain. Or if you have an unrealized loss of $400 at year 1 and an unrealized loss of $100 at the end of year 2, then you have a recovery of $300. Include any dividend and interest income and any realized gains/lossed and just add it up to get your mark to market return.