Holding period return (HPR)

CFA level I / Quantitative Methods: Basic Concepts / Discounted Cash Flow Applications / Holding period return (HPR)

There are many ways to measure the performance of investments. We will discuss some of these performance measuring yields now.

The holding period return is the return earned by an investor over a specified holding period. If the investment makes one cash payment at the end of the holding period, then the holding period return is given by the following formula:

HPR = (P1 - P0 + D1)/P0

Where

P0 = initial investment
P1 = price at the end of the holding period
D1 = cash paid by the investment at the end of the holding period

Example 3: Calculating holding period return

Louis bought 100 shares of stock for $12.50 per share two years ago. He received a dividend of $0.50 per share at the end of the second year after his purchase. He sold the shares after holding those for two years for a share price of $14.50. Compute the holding period return earned by him.

Solution:

The holding period return, HPR = (P1 - P0 + D1)/P0 = (14.50 - 12.50 + 0.50)/12.50 = 20 percent. Louis earned a total of 20 percent during the holding period.

Previous LOS: NPV rule and IRR rule

Next LOS: Money-weighted and time-weighted rates of return

    CFA Institute does not endorse, promote or warrant the accuracy or quality of products and services offered by Konvexity. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.