Holding Period Return (HPR) ⏳
When you buy a share or a bond and hold it for a few months or years, you want to know exactly how much you earned in total. The Holding Period Return (HPR) is the simplest and most common way to calculate this total percentage gain or loss.
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Note
HPR does not take into account the annual rate. It only tells you the total return for the entire duration you held the asset, whether that was 10 days or 10 years.
2. Formula for HPR
The formula for Holding Period Return is:
HPR = [(Ending Price - Starting Price) + Income] / Starting Price * 100
Where:
- Ending Price (P1): The market value at the end of the period.
- Starting Price (P0): The initial cost of the investment.
- Income (D): Cash received (Dividends, Interest, etc.).
3. Numerical Problems on HPR
Let's look at how to apply this formula in real-world scenarios.
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Comparison of Return Components
| Component | Nature | Impact on HPR |
|---|---|---|
| Capital Appreciation | Price change (P1 - P0) | Can be positive (Gain) or negative (Loss). |
| Current Income | Cash inflow (Dividends/Interest) | Always positive or zero; adds to the return. |
Summary
- HPR measures the total return for the entire duration of an investment.
- It combines price changes and income received.
- The formula is (Ending - Starting + Income) / Starting.
- HPR is independent of the time length (it can be for any period).
Quiz Time! 🎯
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