CFA Level I · CFA Level I Exam · Types of Financial Returns
An investor buys a share for $40.00, receives dividends 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. Ignoring the dividend would give 9.0%, which understates the total return.
- A9.0%
- B12.0%Correct
- C14.0%
Explanation
HPR = (P1 - P0 + D)/P0 = (43.60 - 40.00 + 1.20)/40.00 = 4.80/40.00 = 12.0%. Using only the price change gives 9.0%, which omits the dividend. Option C overstates the return.
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