What is the Holding Period Return (HPR)?
The Holding Period Return (HPR) is a measure that quantifies the total return on an investment over a specific holding period. It considers both capital gains and income, such as dividends or interest, over the investment period. HPR provides an efficient way to compare the return from different investments held for varying lengths of time.
Why Calculate the HPR?
The primary reasons for calculating HPR are:
- Performance Assessment: HPR helps you understand the performance of your investment over its holding period.
- Investment Comparison: It allows for the comparison of different investments by providing a comprehensive picture of their returns over a given period.
- Decision-Making: By calculating the HPR, investors can make informed decisions about whether to continue holding an investment or sell it.
How is HPR Calculated?
The formula for HPR is:
HPR = (Ending Value – Beginning Value + Income) / Beginning Value
where:
Ending Value = the value of the investment at the end of the holding period Beginning Value = the value of the investment at the start of the holding period Income = any income generated from the investment during the holding period, such as dividends or interest
The result is usually expressed as a percentage.
Example of HPR Calculation
Suppose you bought stock for $200 and sold it one year later for $250. During that year, you also received dividends totaling $20.
In this scenario: Beginning Value = $200 Ending Value = $250 Income = $20
Substituting these values into the formula:
HPR = ($250 – $200 + $20) / $200 HPR = $70 / $200 HPR = 0.35, or 35%
Therefore, the holding period return on this stock over the one-year period is 35%.