Can someone explain under which scenarios to use differeny holding period yield formulas? It seems that every question on HPY has a different formula. So far I have seen (that I can recall):
a. HPY = (P2-P1)/P1
b. HPY = (Int + End Value/Begin Value) -1
c. HPY = (EAY)^(t/365)-1
Is there a holistic connection that I’m missing here? Thanks!
HPY is a broad concept that could be applied to differnet types of securities. They are all correct.
It measures the yield on intial investment. The first one gives you the capital appreciation yield. he second is simillar with any additional interest or dividends recieved. The third breaks down the effective annual yield to match the holding period.
Simply put:
1- measures absolute return ( not annualized nor compounded )
2- reflect dividends - also measures absolute return
3- your return here is annualized and compounded
Thank you.