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Holding Period Return

The total return on an asset or investment portfolio over its holding period

What is the Holding Period Return?

The Holding Period Return (HPR) is the total return on an asset or investment portfolio over the period for which the asset or portfolio has been held. The holding period return can be realized if the asset or portfolio has been held or expected if an investor only anticipates the purchase of the asset.

 

Holding Period Return

 

Generally, the HPR is expressed in percentages. Frequently, it is annualized to determine the rate of return per year.

 

The Holding Period Return in Investment Management

The holding period return is a fundamental metric in investment management. The measure provides a comprehensive view of the financial performance of an asset or investment because it considers the appreciation of the investment, as well as the income distributions related to the asset (e.g., dividends paid).

Besides the assessment of the investment performance, the HPR can be used to compare the performance of different investments or assets. In addition, this metric is used to identify the appropriate tax rate.

 

Formula for the Holding Period Return

The general formula for calculating the HPR is:

 

Holding Period Return - Formula

 

Where:

  • Income – the distributions or cash flows from the investment (e.g., dividends)
  • Vn – the ending value of the investment
  • V0 – the beginning value of the investment

 

If you need to calculate the annualized HPR, you can use the following formula:

 

Annualized HPR - Formula

 

Finally, the holding period returns can be calculated quarterly. Using the formula below, you can translate the quarterly HPR into the annual HPR:

 

Annual HPR - Formula

 

Where:

  • r1, r2, r3, r – the quarterly holding period returns

 

Example of Holding Period Return

Three years ago, Fred invested $10,000 in the shares of ABC Corp. Each year, the company distributed dividends to its shareholders. Each year, Fred received $100 in dividends. Note that since Fred received $100 in dividends each year, his total income is $300. Today, Fred sold his shares for $12,000, and he wants to determine the holding period return of his investment.

Using the HPR formula, we can find the following:

 

Holding Period Return - Example

 

Thus, Fred’s investment in the shares of ABC Corp. earned 23% for the entire period of holding the investment.

 

More Resources

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

  • Investment Methods
  • Money vs. Time-Weighted Return
  • Return on Equity (ROE)
  • Sharpe Ratio Calculator

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