Holding period return calculation

CFA Level I Quant
#1

Hi,

I have a doubt in this concept .In the 2014 edition of the book (Vol 1,Quantitative Methods ,Reading 6-DCF Applications ,Pages 316-317) ,regarding the Strubecks corp example .

There are 2 portfolios given there ,with cashflows occurring quarterly . Problem statement is to find the time weighted rate of return for each of them & compare . Now the time weighted rate of return is derived from the holding period return (HPR).

The solution shows the HPR to be calculated as (Ending Value-Investment)/Investment ,while in the text before the question (as well as in the Schweser notes) ,it’s calculated as (Ending Value-Starting Value)/Starting Value .

This problem has all the 3 variables ,so that HPR would be different with both the above ralations .I need to understand which relation is applicable in this case .Any help will be appreciated .Thanks !

#2

I don’t have the book with me to look up the question specifically, but HRR is calculated as: (Ending value - Starting value) / Starting valu So I would use whatever values fit that

#3

okay…that seems to be more prevalent on the web as well…thanks

#4

“(Ending Value/Beginning Value) - 1” is the other formular.