3/19/2017 Realized 

and Expected Holding Period Return ­ Equity Investments: CFA Level 2 Tutorial | Investopedia

Topics Reference Advisors Markets Simulator

Search News, Symbols, Terms Newsletters

Realized and Expected Holding Period Return

By Elvin Mirzayev, CFA, FRM SHARE

You May Also Like: Sign up to our free Retirement newsletter for the latest retirement planning advice, social security tips, and more...

Study Session For Equity: Part I Study Session For Equity: Part II Study Session For Equity: Part III

1. Equity Valuation: Its 1.1 Equity Valuation Outline

Applications and Processes
1.2 Value Definitions and Applications
2. Return Concepts for Equity
1.3 Applications of Equity Valuation
Valuation
1.4 Summary of Applications and Processes

Holding period return is return on investment earned over a certain period of time for which the
investment has been held. This type of return is not necessarily annualized, regardless of whether
the investment was held one week, three months, two years or 10 years.

Example 1:

Suppose that you invest in Amazon.com Inc. (AMZN

(AMZN)) common shares on June 14, 2013 at the then
close price of $273.99 per share, and hold it until July 7, 2014 when the price of the same shares
closed at $333.55 per share. You would gain 21.7% return for the period of one year and 23 days.
This is easy to calculate by subtracting beginning value from ending value, and dividing by
beginning value:

where Pt+1 and

andP
Pt are the ending and beginning value, respectively.
Frequently Asked Questions
How did George Soros "break the Bank of England"?

Some investments also provide periodic cash flows as a form of dividend (common and preferred
What counts as "debts" and "income" when calculating
stocks) or coupon payments (bonds). If this cash flow occurs during the holding period, it should be my debt-to-income (DTI) ratio?
included in the return calculation. In this case, the formula to calculate holding period return will be
as follows: Who are Monsanto's main competitors?

Why Do Most of My Mortgage Payments Start Out as

Interest?

Example 2:

Suppose you invest in Intel corporation (INTC

(INTC)) common shares on February 4, 2015, when share
price closed at $33.60 per share. On May 5, 2015, the stock price closed at $32.64, and shareholders
were entitled a dividend payment of $0.24 per share. You earn an 89 day holding period of return
which is calculated as followed:

http://www.investopedia.com/study­guide/equity­investments­cfa­level­ii­tutorial/study­session­equity­part­i/return­concepts­equity­valuation/realized­and­expe… 1/4
3/19/2017 Realized and Expected Holding Period Return ­ Equity Investments: CFA Level 2 Tutorial | Investopedia

Topics Reference Advisors Markets Simulator

For simplicity, the second example is designed so that the dividend payment occurs at the end of the
holding period. In practice, however, dividend payments will not occur on exactly the same date as Search News, Symbols, Terms Newsletters
the ending value of investment. In such situations, the equation becomes complicated when taking
into account time value of cash flows. Also notice that there are various important dates related to
dividend payments, which can be confusing in valuation practice. These are dividend declaration
date,, ex-dividend date,
date date, holder of record date and payment date. Which one is to be used in
valuation? Ex-dividend date is a reasonable choice because it is the key date in determining who is
entitled to the latest declared dividend. Any date prior ex-dividend should not be considered
because, if shareholders sell their stocks before the ex-dividend date, they also sell the right to
collect dividends. (See, Dissecting Declarations, Ex-Dividends And Record Dates.)
Dates.)

Example 3:

Microsoft Corporation (MSFT

(MSFT)) declares $0.31 per share dividend on December 3, 2015 (close price:
$48.08). The ex-dividend date was February 17, 2015 (close price: $43.58), the record date was
February 19, 2015 (close price: $43.50) and the payable date was March 12, 2015 (close price: 41.02).
An investor purchases 100 Microsoft shares on December 31, 2014 at the close price of $46.45, and
sells the shares on April 30, 2015 for $48.64 per share. What is the holding period of return?

Solution: Using the time weighted return concept, split the whole holding period into two: first
period from initial investment until ex-dividend date, second period from ex-dividend date until
selling date. The holding period returns for these sub-periods are as follows:

Holding period return from December 31, 2014 to February 17, 2015:

Trading Center
Holding period return from February 17, 2015 to April 30, 2015:

Return for the period from December 31, 2014 to April 30, 2015:

Partner Links
Learn to trade stocks by investing $100,000 virtual
So far we have been discussing realized holding period of return, which means that interim cash dollars...
flows (dividends) and final cash flows (from selling the investment) are known during the holding
period calculation, which is also called ex-post calculation. Investors may want to estimate the
expected holding period of return prior to or on the date of an actual investment, which is a
complicated task compared to the realize return calculation because interim and ending cash flows
are unknown and random variables. Investors form their expectations using their own judgment or
using valuation models.

What Do Other Investors Know That You Don't?

If it seems like you're always late to the party when the market is swinging, it's because other
investors are beating you to the news. Stay ahead of the pack by getting the latest insight and
analysis in your inbox every morning and after the market closes. If you're tired of making losing
trades day after day and are looking for an edge then why not sign up for free and start your day
better informed and ready to take on the markets.

Next: Required Return, Discount Rate and IRR: Concepts & Examples

http://www.investopedia.com/study­guide/equity­investments­cfa­level­ii­tutorial/study­session­equity­part­i/return­concepts­equity­valuation/realized­and­expe… 2/4
3/19/2017 Realized and Expected Holding Period Return ­ Equity Investments: CFA Level 2 Tutorial | Investopedia

Topics Reference Advisors Markets Simulator

RELATED ARTICLES
INVESTING
Search News, Symbols, Terms Newsletters
What is a Record Date?
The date established by an issuer of a security for the purpose of determining the
holders who are entitled to receive a dividend or distribution.

TRADING
Understanding How Dividends Affect Option Prices
Learn how the distribution of dividends on stocks impacts the price of call and
put options, and understand how the ex-dividend date affects options.

INVESTING
Dividend Facts You May Not Know
Discover the issues that complicate these payouts for investors.

INVESTING
How To Use The Dividend Capture Strategy
Dividend capture strategies provide an alternative investment approach to
income seeking investors.

MANAGING WEALTH
Understanding Total Returns
Total return measures the rate of return earned from an investment over a period
of time.

INVESTING
3 Dividend Trends in the S&P 500 Index (TSN, LUV)
Analyzing recent financial performance of companies demonstrating an
inclination to issue consistent dividends to shareholders on a quarterly basis.

SMALL BUSINESS
Calculating Net Present Value at Different Points Using Excel
Calculating the net present value (NPV) of your investment projects using Excel.

INVESTING
Gauge Portfolio Performance By Measuring Returns
Calculate returns frequently and accurately to ensure that you're meeting your
investing goals.

Search Investopedia

http://www.investopedia.com/study­guide/equity­investments­cfa­level­ii­tutorial/study­session­equity­part­i/return­concepts­equity­valuation/realized­and­expe… 3/4
3/19/2017 Realized and Expected Holding Period Return ­ Equity Investments: CFA Level 2 Tutorial | Investopedia

DICTIONARY: # A B C D
Topics E F G
Reference H Advisors
I J K L
Markets MSimulator
N O P Q R S T U V W X Y

CONTENT LIBRARY Search News, Symbols, Terms Newsletters

CONNECT WITH INVESTOPEDIA
Articles Terms
Stock Simulator
Videos
FXtrader
Guides Slideshows
Exam Prep Quizzer
FAQs Calculators
Net Worth Calculator
Chart Advisor Stock Analysis
HcrIJ
WORK WITH INVESTOPEDIA GET FREE NEWSLETTERS
About Us Advertise With Us Write For Us Contact Us Careers Newsletters

© 2017, Investopedia, LLC. All Rights Reserved Terms Of Use Privacy Policy

http://www.investopedia.com/study­guide/equity­investments­cfa­level­ii­tutorial/study­session­equity­part­i/return­concepts­equity­valuation/realized­and­expe… 4/4