Holding Period Return Calculator

1. What is Holding Period Return?

Definition: The Holding Period Return (HPR) is the total return earned on an investment or portfolio over the period it is held, expressed as a percentage. It includes both capital gains (or losses) and income from dividends or interest.

Purpose: HPR helps investors evaluate the performance of their investments by considering all sources of return, making it easier to compare investments held for different periods.

2. How Does the Holding Period Return Calculator Work?

The calculator uses the following formula for Holding Period Return, as shown in the image above:

\[ \text{HPR} = \left( \frac{(EV - BV) + DI}{BV} \right) \times 100 \]

For Annualized HPR, the formula is:

\[ \text{AHPR} = \left(1 + \frac{\text{HPR}}{100}\right)^{\frac{1}{HP}} - 1 \times 100 \]

Where:

$ BV $: Beginning Value (bought price in dollars)
$ EV $: Ending Value (sold price in dollars)
$ DI $: Dividend Income (in dollars)
$ HP $: Holding Period (in years)
$ \text{HPR} $: Holding Period Return (in percentage)
$ \text{AHPR} $: Annualized Holding Period Return (in percentage)

Steps:

Enter the Beginning Value (bought price) in dollars
Enter the Ending Value (sold price) in dollars
Enter the Dividend Income received during the holding period in dollars
Enter the Holding Period in years
The calculator computes the HPR and Annualized HPR as percentages

3. Importance of Holding Period Return Calculation

Calculating HPR is essential for:

Investment Performance: Evaluate the total return from an investment, including both price changes and dividends
Comparison: Compare the performance of different investments held over varying periods by using annualized HPR
Decision Making: Make informed decisions by considering all sources of return, not just price appreciation
Tax Implications: Determine tax rates based on the holding period (short-term vs. long-term capital gains)

4. Using the Calculator

Example 1: Calculate the HPR for Company Alpha

$ BV $: $100
$ EV $: $120
$ DI $: $7.50
$ HP $: 1 year
$ \text{HPR} $: $ \left( \frac{(120 - 100) + 7.50}{100} \right) \times 100 = 27.50\% $
$ \text{AHPR} $: Since $ HP $ is 1 year, $ \text{AHPR} = 27.50\% $

Example 2: Calculate the HPR for a stock held for 2 years

$ BV $: $50
$ EV $: $60
$ DI $: $2
$ HP $: 2 years
$ \text{HPR} $: $ \left( \frac{(60 - 50) + 2}{50} \right) \times 100 = 24.00\% $
$ \text{AHPR} $: $ \left(1 + \frac{24}{100}\right)^{\frac{1}{2}} - 1 \times 100 ≈ 11.38\% $

5. Frequently Asked Questions (FAQ)

Q: Why include dividend income in HPR?
A: Dividend income is a significant part of total returns for many investments, especially dividend-paying stocks, and excluding it would underestimate the investment’s performance.

Q: What does a negative HPR mean?
A: A negative HPR indicates a loss on the investment, meaning the ending value plus dividends is less than the beginning value.

Q: Why calculate annualized HPR?
A: Annualized HPR standardizes returns to an annual basis, making it easier to compare investments held for different periods.

Q: How does HPR affect taxes?
A: The holding period determines whether gains are taxed as short-term (less than 1 year) or long-term (more than 1 year), with different tax rates applying.