Question

Question 1

Part A: If a stock appreciates from $24 to $27, what is the HPR

Part B: What is the APR in Part "a" if the holding period were 18 months?

Answer 1

Solution :

A.The formula for calculating the holding period return is

= ( Closing price – Opening Price ) / Opening Price

As per the information given in the question is

Opening Price : $ 24

Closing price : $ 27

Applying the above values in the formula we have

= ( 27 – 24 ) / 24

= 3 / 24

= 0.1250 = 12.50 %

Thus the HPR i.e., Holding period return is 12.50 %

B.The formula for calculating the Annualized Percentage Return is

APR = HPR/n

Where HPR = Holding Period Return

n = No. of years of investment or holding period in years

As per the information available we have

HPR = 12.50 %    ;   n = 18 months = 1.5 years

Applying the available information in the formula we have

APR = 12.50 % / 1.5

= 8.3333 %

= 8.33 % ( when rounded off to two decimal places )

Thus the APR in Part "a" if the holding period were 18 months = 8.33 %