Question

A stock has had returns of 17.12 percent, 12.28 percent, 6.16 percent, 27.34 percent, and −13.69 percent over the past five years, respectively. What was the holding period return for the stock?

Answer 1

The holding period return for the stock is calculated by multiplying the compounded annual returns together and subtracting 1. This gives the total percentage return over the investment period, including dividends and capital gains.

Step-by-step explanation:

To calculate the holding period return (HPR) for the stock, we simply add up the individual annual returns provided. Assuming that these returns are compound returns, we would find the cumulative effect of these returns over the five-year period.

The formula for the holding period return when we have individual annual returns is:

(1 + r1)(1 + r2)(1 + r3)...(1 + rn) - 1

Where r1, r2, r3,..., rn are the individual annual returns. Plugging in the given returns:

(1 + 0.1712)(1 + 0.1228)(1 + 0.0616)(1 + 0.2734)(1 - 0.1369) - 1

After performing the calculations, we end up with the final HPR value, which represents the total return, including dividends and capital gains, over the entire period the stock was held.