CFA Level I · CFA Level I Exam · Returns of Financial Assets and Instruments
An investor buys a share for $40.00, receives a dividend of $1.20 during the year, and sells the share at year-end for $43.60. The holding period return is closest to:
The holding period return is 12.0%. It equals the price gain of $3.60 plus the $1.20 dividend, divided by the $40.00 purchase price. Using price change alone would give 9.0%, which ignores the income component of total return.
- A9.0%
- B12.0%Correct
- C13.0%
Explanation
HPR = (43.60 − 40.00 + 1.20)/40.00 = 4.80/40.00 = 12.0%. The 9.0% figure is the price return only, which omits the dividend. The 13.0% figure wrongly divides by the ending price... actually 4.80/36.9 is not meaningful; the correct base is the beginning price of $40.00.
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