Which statement best defines holding period return?

Which statement best defines holding period return?

• A. The total return earned on an investment over the holding period, expressed as a percentage of initial investment.
• B. The annualized return on investment.
• C. The cash flow yield on asset value.
• D. The sale price divided by purchase price.

Answer: (A)

Holding period return measures the total gain or loss from an investment over the entire time you hold it, expressed as a percentage of the amount you initially invested. It includes both any cash distributions received (like dividends or interest) and the change in the asset’s price, relative to the purchase price. In other words, it answers: if I start with 100 and, by the end, I’ve got the ending value plus any cash flows minus the initial investment, all divided by the initial investment, what is my return over that period? For example, buying at 100, receiving 5 in cash and selling at 110 yields an HPR of (110 + 5 − 100) / 100 = 15%. This differs from an annualized return, which converts the same total return into a yearly rate; it also isn’t just cash flow yield (which focuses only on cash relative to asset value) or simply sale price divided by purchase price (which ignores interim cash flows and the time element).

Holding period return measures the total gain or loss from an investment over the entire time you hold it, expressed as a percentage of the amount you initially invested. It includes both any cash distributions received (like dividends or interest) and the change in the asset’s price, relative to the purchase price.

In other words, it answers: if I start with 100 and, by the end, I’ve got the ending value plus any cash flows minus the initial investment, all divided by the initial investment, what is my return over that period? For example, buying at 100, receiving 5 in cash and selling at 110 yields an HPR of (110 + 5 − 100) / 100 = 15%.

This differs from an annualized return, which converts the same total return into a yearly rate; it also isn’t just cash flow yield (which focuses only on cash relative to asset value) or simply sale price divided by purchase price (which ignores interim cash flows and the time element).