RECA Commercial Practice Exam

Total return on an investment is calculated by combining the periodic income generated from the investment and any changes in its value, which includes capital appreciation (an increase in value) or depreciation (a decrease in value). This comprehensive approach allows you to understand the overall performance of the investment.

In this calculation, periodic income can come from dividends, interest, or rental payments, while capital appreciation or depreciation reflects market changes over time. By assessing both income and capital changes, investors gain insight into the true profitability of the investment, making option B the most accurate representation of how total return is computed.

The other options focus on aspects that do not capture the complete picture of total return. For instance, only considering periodic income ignores the impact of capital changes, while focusing solely on capital expenses does not account for income, which is crucial in determining the investment's overall performance. Similarly, summing rental income with operating expenses does not accurately reflect total return, as it neglects capital appreciation or depreciation.