Question

You are considering purchasing a stock that currently sells for $48. The expected price of the stock in a year is $46, and during the coming year a $5 dividend is expected to be paid. The risk-free rate is 4% and the market return is 10%. The stock has a beta of 0.9. What is the holding period return of the stock

Answer 1

Holding Period return is 6.25%

Step-by-step explanation:

The return received on the asset in the period in which it is held is called holding period return. It included the interest / dividend received and change in the initial price and current price.

According to given data

Initial Price of stock = $48

Expected Value in coming year = $46

Expected Dividend = $5

Formula for Holding Period Return

HPR = [ Income + [ ( Expected value - Initial Value ) ] / initial value

HPR = [ Expected Dividend + [ ( Expected value - Initial Value ) ] / initial value

HPR = [ $5 + ( $46 - $48 ) ] / $48

HPR = [ $5 - $2 ] / $48

HPR = $3 / $48

HPR = 0.0625 = 6.25%