This module is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 1 of 9 · 12 min
Financial assets, yields and expected versus actual returns
Every return comes from a price change and from cash paid out, and the return you plan on before investing is never guaranteed to be the one you get.
In short
- Financial assets (cash, equity, debt, hybrids) and financial instruments (standardised, tradable contracts such as shares, bonds, rights and derivatives) generate cash flows; financial indicators (exchange rates, interest rates, market indexes) do not and cannot be traded directly.
- Total return = price return + distribution return .
- For shares the distribution return is the dividend yield; for bonds it is the current yield: annual coupon ÷ market price.
- Expected (ex ante) returns are forecasts made before investing; actual (ex post) returns are what was earned. Risk is the chance that the two differ.
- Unrealised (paper) gains become realised when the asset is sold; taxes are usually charged only on realised gains.
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