CFA Level I · CFA Level I Exam · Portfolio Risk and Return: Part I
An investor buys a share for $40.00, receives a dividend of $1.60 during the year, and sells the share at year-end for $43.20. The holding period return is closest to:
The holding period return is 12.0%. It combines the $3.20 capital gain and the $1.60 dividend, giving $4.80 of total gain on a $40.00 purchase price. The 8.0% option counts only the price change and leaves out the dividend.
- A8.0%
- B12.0%Correct
- C14.0%
Explanation
HPR = (P1 − P0 + D)/P0 = (43.20 − 40.00 + 1.60)/40.00 = 4.80/40.00 = 12.0%. Ignoring the dividend gives only 8.0% (3.20/40), the price return.
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