Question

Equity returns are normally measured as _______. a) Dividend changes b) Price changes c) Holding period returns d) Binomial returns

Answer 1

Equity returns are normally measured as holding period returns, which take into account both price changes and dividend payments over a specific period of time. The correct option is c.

Step-by-step explanation:

Equity returns are normally measured as holding period returns. Holding period returns measure the total return on an investment over a specific period of time, taking into account both price changes and dividend payments. It represents the percentage gain or loss an investor has realized from holding an investment for that period.

For example, if an investor buys a stock for $100 and sells it a year later for $120, while also receiving $5 in dividends during that year, the holding period return would be calculated as:

1. (Ending Value + Dividends - Beginning Value) / Beginning Value
2. (120 + 5 - 100) / 100 = 0.25 or 25%

The correct option is c.