The return on a security held for a specific period, such as 18 months, without adjusting for time or compounding, is referred to as the holding period return (HPR) . This straightforward calculation assesses total returns over the period of ownership.
1. Definition of Holding Period Return:
The HPR is calculated as:
HPR=(Ending Value - Initial Value) + Dividends ReceivedInitial ValueHPR = \frac{{\text{(Ending Value - Initial Value) + Dividends Received}}}{{\text{Initial Value}}}HPR=Initial Value(Ending Value - Initial Value) + Dividends Received
This measure evaluates total growth, disregarding compounding or annualization.
2. Other Return Types (Incorrect Answers):
Effective Rate of Return: Reflects annualized returns considering compounding within a year. It is not applicable to non-annualized periods like 18 months.
Nominal Rate of Return: The unadjusted rate of return without accounting for inflation. While related, it does not specifically refer to the holding period concept.
Annualized Total Return: This adjusts returns to reflect an annual basis, assuming constant performance throughout the period. It is unsuitable for raw, unadjusted returns like the HPR.
References from CSC Study Documents:
Chapter 15, Volume 2: Covers the calculation of different return metrics, with detailed examples of HPR and its application.
Portfolio Return Analysis in Section 15 explains the non-compounded nature of holding period calculations.
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