Holding period return

Question

 Christopher purchased 200 shares of ABC stock at $21.25 per share. After nine months, he sold all of his shares at a price of $19.88 a share. Christopher received a total of $0.55 per share in dividends during the time he owned the shares. Jake's holding period return is

A) -6.4%.

B) -3.9%.

C) 2.6%.

D) 9.7%.

Answer 1

Holding Period Return refers to the return an investor earns while holding an asset for a period of time. It is expressed as a percentage of the original price. It is composed of two parts: capital gains yield (return realized from the change in stock price) and the dividend yield (return realized from dividends during the period).

Capital Gains Yield = P₁ - P₀ / P₀ Dividend Yield = D / P₀

Where, P₁ is the price at the end of the period

P₀ is the beginning price

D represents any dividends received during the period

We can just combine the two formulas to find the Holding Period Return.

Holding Period Return = Capital Gains Yield + Dividend Yield

HPR = (P₁ - P₀ + D) / P₀

HPR = (19.88 - 21.25 + 0.55) / 21.25

HPR = -0.82 / 21.25

HPR = -0.0385 or -3.9%

Answer 2

Holding period return is the return realized over the period you held an asset from the time you bought it to the point you sold it and should include all benefits received in the interim.

In this case the return is (Selling price + Dividends)/Purchase Price - 1