Question of the Week

John purchased 100 shares of XYZ stock for $50 per share. He held the stock for one year then sold the 100 shares for $60 per share. During the time he owned the stock it paid a $1.50 dividend per share. What was John’s Holding Period Return?

a) 21 percent
b) 23 percent
c) 27 percent
d) 25 percent

Answer:

The correct answer is b.

The Holding Period Return (HPR) is the total return (income, dividends, plus capital appreciation less margin interest) over the entire period dividend by the price of the investment. In the example above, $6,000 (proceeds) + $150 (dividend) - $5,000 (cost) divided by $5,000 (cost) equals 23%.