Final answer:
The holding period return is not necessarily the best method for comparing short-term and long-term investments, as investments like stocks, bonds, and savings accounts have different characteristics, including risk and return expectations over time. The statement that the holding period return is an excellent method for comparing a short-term investment to a long-term investment is false.
Step-by-step explanation:
Holding period return (HPR) measures the performance of an investment over a specified time period, but it's not necessarily a direct comparison tool for short-term versus long-term investments due to factors such as risk tolerance, investment objectives, and the volatility of returns over different time frames.
Considering investments, over a long duration, stocks tend to have a higher average return compared to bonds, and bonds generally yield higher returns than a savings account. This is because stocks have a higher degree of volatility and thus carry more risk, which should be compensated with a higher return. Comparatively, the stability of a savings account comes with lower returns. High-risk investments don't always translate to low returns; rather, there is a wider range of possible outcomes. The expectation of higher returns is justified by the higher risk. Over time, the volatility in stock returns tends to even out, which could lead to higher rewards for those who are in a position to wait.