Final answer:
It is true that the holding period return should not be used to compare long-term investments because it fails to consider the time value of money, which is essential for understanding compounded growth and the present value of future returns.
Step-by-step explanation:
The assertion that holding period return should not be used to compare long-term investments because it does not consider the time value of money is true. The holding period return measures the total return of an investment over the period it was held, but it does not take into account the length of the investment period. As such, it doesn't reflect the compounded growth of money over time, which is an essential aspect when comparing long-term investments.
For instance, stock values can experience significant fluctuations over time, with potential for high returns that should be assessed in the context of how much time has passed. This variability is not captured by the holding period return. The time value of money is a finance principle that recognizes the present value of money being more valuable than the same amount in the future due to its potential earning capacity. Therefore, discounted cash flow methods, which do account for time value, are often considered more appropriate for evaluating long-term investments than the holding period return.