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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Investment

Mr. Raghav Iyer invested Rs 50,000 in a bond fund. After one year it was worth Rs 54,000, and during the year he also received Rs 1,000 as a dividend payout. What was his holding period return?

The holding period return is 10%. Capital gain of Rs 4,000 plus the Rs 1,000 dividend gives total gain of Rs 5,000, which divided by the initial investment of Rs 50,000 equals 10%. Leaving out the dividend would understate the return at 8%.

  1. A8%
  2. B10%Correct
  3. C2%
  4. D12%

Explanation

Holding period return = (ending value - beginning value + income) / beginning value = (54,000 - 50,000 + 1,000) / 50,000 = 5,000 / 50,000 = 10%. Ignoring the dividend gives 8%, which is the key wrong answer. 2% is the income yield on the dividend component alone, and 12% would add the dividend twice.

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