The holding period return is a measure of an investment's performance over a specific period of time. It considers the income the investment generates, such as dividends or interest, and any capital gains or losses.
What is the holding period return for an investment that was purchased for $200, paid annual dividends of $10, and was sold after three years for $250?
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A) The holding period return is not 55%. B) The holding period return is not 20%. C) The holding period return is (($250 - $200) + ($10 x 3)) / $200 = 40%. D) The holding period return is not 30%.
Which of the following is NOT a component of holding period return?
A) Dividends are a component of holding period return. B) Capital gains are a component of holding period return. C) Interest is a component of holding period return. D) Inflation is not a component of holding period return.
What is the difference between the holding period return and the annualized return?
A) This is not the difference between the holding period return and the annualized return. B) This is not the difference between the holding period return and the annualized return. C) The holding period return is the total return on an investment over the holding period, while the annualized return is the holding period return expressed as an annual percentage rate. D) There is a difference between the holding period return and the annualized return.
In the 1980s, a popular investment strategy was to buy stocks with high dividend yields. Investors who followed this strategy would have experienced high holding period returns during this time, as the combination of income from dividends and capital gains from rising stock prices led to strong overall performance.
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Example Series 65 Example Practice Question
An investor purchases a stock for $100 and holds it for two years. During this time, the stock pays annual dividends of $5, and at the end of the holding period, the stock is worth $120. The holding period return for this investment would be (($120 - $100) + ($5 x 2)) / $100 = 30%.