CFA Level I, Port­fo­lio Manage­ment, Hol­ding Peri­od Return — MC Question

We com­pu­te the hol­ding peri­od return as the sum of capi­tal gain and divi­dend yield.

Exam­p­le:

The pri­ce of a given share now and one year from now are $2 and $2.5, respec­tively. The divi­dend paid in one year equ­als 20 cents. The hol­ding peri­od return thus equals

A. 40 percent, 

B. 32  percent, 

C. 35 percent.

Solu­ti­on: C. is correct.

We com­pu­te the hol­ding peri­od return, deno­ted by R, as 

R =  Capi­tal gain + divi­dend yield 

= (P_t — P_t‑1)/P_t‑1 + D_t/P_t‑1

= (2.5 — 2)/2 + 0.2/2

= 0.25 + 0.1

= 0.35

= 35 %.