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Questions and Answers
What are the two components of return on any asset?
What are the two components of return on any asset?
What does HPR stand for in the context of rates of returns?
What does HPR stand for in the context of rates of returns?
How is the arithmetic average return calculated for an investment over multiple periods?
How is the arithmetic average return calculated for an investment over multiple periods?
If the stock price for Stock A was $10 per share 1 year ago, and is currently trading at $9.50 per share with shareholders receiving a $1 dividend, what return was earned over the past year?
If the stock price for Stock A was $10 per share 1 year ago, and is currently trading at $9.50 per share with shareholders receiving a $1 dividend, what return was earned over the past year?
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Consider an investment with the following returns: Year 1: $5 ext{%$, Year 2: $-3 ext{%$, Year 3: $4 ext{%$, Year 4: $5 ext{%$. What is the arithmetic annual return for this investment?
Consider an investment with the following returns: Year 1: $5 ext{%$, Year 2: $-3 ext{%$, Year 3: $4 ext{%$, Year 4: $5 ext{%$. What is the arithmetic annual return for this investment?
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What does HPR stand for in the context of rates of returns?
What does HPR stand for in the context of rates of returns?
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What are the two components of return on any asset?
What are the two components of return on any asset?
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How is the arithmetic average return calculated for an investment over multiple periods?
How is the arithmetic average return calculated for an investment over multiple periods?
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If an investment has the following returns: Year 1: 5%, Year 2: -3%, Year 3: 4%, Year 4: 5%, what is the arithmetic annual return for this investment?
If an investment has the following returns: Year 1: 5%, Year 2: -3%, Year 3: 4%, Year 4: 5%, what is the arithmetic annual return for this investment?
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In the context of rates of returns, what formula is used to calculate the Holding Period Return (HPR)?
In the context of rates of returns, what formula is used to calculate the Holding Period Return (HPR)?
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Study Notes
Return on Assets
- Two components of return on any asset: income and capital appreciation
Holding Period Return (HPR)
- HPR stands for Holding Period Return in the context of rates of returns
- Formula to calculate HPR: ((Current Price - Initial Price + Dividend) / Initial Price) or ((P1 - P0 + D) / P0)
Arithmetic Average Return
- Calculated by averaging the returns over multiple periods
- Formula: (Sum of Returns over multiple periods) / Number of periods
- Example: If an investment has the following returns: Year 1: 5%, Year 2: -3%, Year 3: 4%, Year 4: 5%, the arithmetic annual return is: (5 + (-3) + 4 + 5) / 4 = 11 / 4 = 2.75%
Example Problem
- If the stock price for Stock A was $10 per share 1 year ago, and is currently trading at $9.50 per share with shareholders receiving a $1 dividend, the return earned over the past year is: ((9.50 - 10 + 1) / 10) = 0.50 / 10 = 5%
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Description
Test your knowledge about rates of returns and Holding Period Return (HPR). Understand the components of return on investment and how to calculate HPR using buy and sale prices as well as cash flows.
