What Is a Holding Period Return?

Holding period return (HPR) is an abbreviation of Holding Period Return, and its calculation formula is the ratio of the value of the stock or bond during the holding period to the initial value. The holding period yield (HPY) is the difference between the holding period return and 1. The two are not equivalent.

Holding period return

The holding period yield is the comprehensive yield of an investor's investment in stocks.

r = [D + (P1-P0) / n] / P0

D is the annual cash dividend amount, P0 is the stock purchase amount, P1 is the stock sale amount, and n is the number of years the stock is held.

Yield of holding period Rhp:

Rhp = ending value of holding period / opening value of holding period -1

The holding period yield Rhp can also be converted into the equivalent yield Rg for each period. If compound interest is calculated, the relationship between the holding period yield and the equivalent yield can be expressed as:

(1 + Rg) N = 1 + Rhp

Among them, N is the number of time periods during the holding period.

Assume that the value of a certain stock at the beginning of the year is 45 yuan, the dividend is paid at the end of the first year at 2.00 yuan, and the value-added at the end of the year is 50 yuan; the dividend at the end of the second year is 2.50 yuan, and the value at the end of the year is 58 yuan. Yuan can buy 0.04 shares of the same kind of stock (= 2.00 yuan / 50 yuan). Of course, this amount is only meaningful if the investor holds a large number of shares, such as 100 shares of dividends can buy 4 shares of the same kind of stock. The investor received a dividend of 2.60 yuan (= 1.04 x 2.50 yuan) in the second year, and the value of the stock at the end of the second year was 60.32 yuan (= 1.04 * 58 yuan). Therefore, the ending value of the stock was 62.92 yuan (= 60.32 yuan + 2.60 yuan) , Calculate the relative value: (62.92 yuan / 45 yuan) = 1.3982

Therefore, the return on the stock's two-year holding period is 39.82%.