Holding Period Yield (HPY) is refers to return that an investor get for holding an investment for a particular period. It is sum of capital appreciation (price change during period) and any dividend received.
Where,
P1 = Expected price of stock at end of period
P0 = Price of stock at beginning
D= Dividend
In order to calculate holding period yield, we first need to calculate the expected price of stock at end.
where,
pn = Probability
E(P)= expected price
State | Probability(p) | Expected Price E(P) | p*E(P) |
1 | .25 | $50 | $12.5 |
2 | .4 | $60 | $24 |
3 | .35 | $70 | $24.5 |
Expected Price at end (P1) | $61 |
Now, we have
P1 = $ 61
P0 = $ 55
D = $ 4
HPY = {(61-55) + 4}/55
= 0.1818
Thus, Holding Period Yield is 0.1818
Please note -
formula provided in question is same just expression is different. we can get same answer with that too.
HPY = {(61+4)/55}-1
= 0.1818
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