Final answer:
The statement is True, the formula provided correctly describes the calculation of the Holding Period Return (HPR) when dividends are not reinvested. HPR measures the total return, including net change in NAV, capital gains, and dividends received, over a specific holding period.
Step-by-step explanation:
The statement, "If dividends are not reinvested, the HPR is calculated as (Net change in NAV + Capital Gains + Dividends) / Beginning NAV," is True. The Holding Period Return (HPR) assesses the total return on an investment over a specified holding period. This includes all income and capital gains generated by the investment, but not reinvested in it. The formula for HPR without reinvesting dividends is indeed the sum of the net change in the Net Asset Value (NAV), any capital gains, and dividends received, all divided by the beginning NAV to calculate the rate of return.
To calculate HPR, follow these steps:
Identify the beginning NAV of the investment at the start of the holding period.
Add any capital gains or losses to the change in NAV.
Add dividends, if there were any distributed during the holding period.
Subtract the beginning NAV from the sum of the adjusted NAV and dividends to obtain the net change in value.
Divide the net change by the beginning NAV to find the HPR.
This formula assumes that all cash flows such as dividends are not reinvested but rather taken as cash.