When analyzing rates of return, our starting point is the total return, or holding period return (HPR). HPR measures the total return for holding an investment over a certain period of time, and can be calculated using the following formula:
It has two important characteristics:
A stock is currently worth $60. If you purchased the stock exactly one year ago for $50 and received a $2 dividend over the course of the year, what is your holding period return?
Rt = ($60 - $50 + $2)/$50 = 0.24 or 24%
The return for time period t is the capital gain (or loss) plus distributions divided by the beginning-of-period price (dividend yield). Note that for common stocks the distribution is the dividend; for bonds, the distribution is the coupon payment.
The holding period return for any asset can be calculated for any time period (day, week, month, or year) simply by changing the interpretation of the time interval.
Return can be expressed in decimals (0.05), fractions (5/100), or as a percent (5%). These are all equivalent.
|mohdsaad: What about cash in from sold shares|
|mohdsaad: assuming there is cash dividends declared but not collected so it is to be added or only we consider cash dividends that already collected|
|hopeipass: you can only calculate holding period return for shares you hold for the whole time period (hence the name)|
|choas69: someone explain my question in last quiz please|
|sunxx320: @choas69: your question has been answered.|
|choas69: efficient thank you sunxx320|