The formula to calculate the Holding Period Return (HPR) is:
\[ HPR = \frac{I + (FV - IV)}{IV} \]
Where:
Let's say the income generated from the investment (\( I \)) is $500, the final value (\( FV \)) is $1500, and the initial value (\( IV \)) is $1000. Using the formula:
\[ HPR = \frac{500 + (1500 - 1000)}{1000} \]
We get:
\[ HPR = \frac{500 + 500}{1000} = 1 \]
So, the Holding Period Return (\( HPR \)) is 1, or 100%.
Holding Period Return (HPR) is a financial metric used to measure the profitability of an investment over a specific period of time. It represents the percentage gain or loss an investor has experienced during the holding period of an investment. HPR is important because it allows investors to evaluate the performance of their investments and make informed decisions. It provides a clear understanding of the return generated during a specific period. A positive HPR indicates a profit, while a negative HPR signifies a loss.
Investors use HPR to compare different investment options and assess their profitability. It helps in determining the success of an investment strategy, identifying the most lucrative investments, and making adjustments if required. HPR also assists in evaluating the performance of investment managers or funds. Furthermore, HPR is crucial in calculating other important financial indicators, such as the average rate of return, which measures the average gain or loss over multiple holding periods. By considering the HPR of various investments, investors can make well-informed decisions, manage their portfolios effectively, and maximize their returns.
