2.2 Holding Period Return

Question 1

What is the Holding Period Return?

Answer 1

The Holding Period Return is the total return on an investment over a specified time period, typically a year.
The HPR incorporates both the change in price over the specified time period and the income earned from that
investment (interest, dividends, or other cash receipts).

Question 2

What is the formula for HPR?

Answer 2

The formula for HPR is:
((Price at end of period P1 – Price at start of period P0) + Cash flow from investment CF) DIVIDED BY Price at start of period P0

OR

Return =
((P1 – P0) + CF)
—
P0

Question 3

What time period is it better to use when comparing investments?

Answer 3

It is better to compare investments over an annual period.

Question 4

What is the formula to annualise returns when they are initial presented in a shorter time period?

Answer 4

(1 + HPR)n – 1
where:
n = the number of periods per year.

Question 5

What is the Arithmetic Mean?

Answer 5

The Arithmetic Mean can be calculated by adding up the sum of the returns and dividing this by the number of returns.

Question 6

What is the Arithmetic Mean in a mathematical format?

Answer 6

In a mathematical format the Arithmetic Mean is:

n

Where:

∑HPR = the sum of all holding period returns.
n = the number of returns being measured.