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What Is Holding Period Return?
What is holding period return? – Holding period return is rate an investment has returned over a specific period of time. The holding period return is often expressed as a percent. The calculation for determining the holding period return is one of the simplest in finance. However, it is also one of the most important concepts for finance students to understand. The formula for holding period return is as follows:
- Holding period return (HPR) = (End price – Start Price + Dividends) / Start price
- The “End Price” is the price an asset (Stock usually) is sold for.
- The “Start Price” is the price an asset (Stock usually) was bought.
- The “Dividend” is any money that was paid out in the time the asset/stock was owned.
Example of Holding Period Return.
An example that may be applied to this equation would be as follows: a person bought a stock for $25 last year and sold the stock for $30. Six months ago, the stock paid a dividend of two dollars. What is a holding period return for this asset? To solve this problem, the steps would be as follows:
· Holding period return (HPR) = (End price – Start Price + Dividends) / Start price
· HPR = (30 – 25 + 2) / 25
· HPR = 7 / 25
· HPR = 28%
As we can see, the holding period return is 28%. In other words, the investor who bought the stock for $25 and received the dividend for two dollars, then sold the stock for 30 would have to return of 28%.
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