Holding Period Return (HPR): Formula & Examples

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  • 0:03 Examining HPR
  • 1:19 Annualized Holding…
  • 2:01 Using HPR for Periodic Returns
  • 3:14 Lesson Summary
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Lesson Transcript
Instructor: James Walsh

M.B.A. Veteran Business and Economics teacher at a number of community colleges and in the for profit sector.

In this lesson, we will learn how to calculate holding period returns and how to annualize them. Several formulas will be presented with examples that work through each type of return.

Examining HPR

Fred is a big investor in mutual funds. He does not have the time or know how to be an active stock trader, but he knows that if you buy the right fund and hold it for a period of years you will do just as well as many professional traders. His problem is that he needs to know what the return is for funds he has held for many years. He also wants a basis to compare funds he has held for different lengths of time.

There is a powerful tool to help Fred find answers: it is the holding period return. The holding period return is the total return from income and asset appreciation over a period of time expressed as a percentage. The holding period return formula is:

  • HPR = ((Income + (end of period value - original value)) / original value) * 100

Fred purchased shares in the Big Blue fund four years ago for $5,000. The shares are worth $10,000 today. He also received $250 in distribution income each year. His holding period return is:

  • ((1,000 + (10,000 - 5,000) / 5,000) * 100, or 120%

Pretty good, huh? But now he wonders what that would be on an annualized basis.

Annualized Holding Period Return

For that he uses the annualized HPR formula and expresses the percent return in decimal form. Fred uses Excel and this formula to get the answer:

  • Annualized HPR = ((HPR + 1) ^ 1/t) - 1

where t = the number of years.

The annualized return for Big Blue over the four-year period is:

  • ((1.2 +1) ^ ¼) -1

which comes to 0.217, or turning it back to a percentage we multiply by 100 and get 21.7%. Still, pretty good! He can now use this to compare returns on Big Blue with returns on other funds he has held for different lengths of time.

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