Stat Concepts & Mkt Returns Comperhensive Problems

Question on the Schweser Comprehensive Problems in the Stat Concepts & Mkt Returns section (pg. 184) 1f. What is the holding period return on a 6-year investment in this fund made at the begining of 1999 year: year end price$: yr end div$: annual return% 1999: 28.50: 0.14: 3% 2000: 26.80: 0.15: 4% 2001: 29.60: 0.17: 4.3% 2002: 31.40: 0.17: 5% 2003: 34.50: 0.19: 4.1% 2004: 37.25: 0.22: 6% HPR = [(ending value + divs)/begining value] - 1 The solution they have is: (1.03)(1.04)(1.043)(1.05)(1.041)(1.06)-1 = 29.45% This looks like they are calcing the EAR not the HPR, can someone explain, Thanks

It’s the HPR from 1999 through 2004

HPR is the return that you earn through entire life of the investment… remember HPR is the compunded rate of return…not simple interest So they have taken the geometric mean to tak in the effect of compounding Hope this helps!

Hi sillbeer, the ans is correct as they are properly calculating the HPR, i think you may be confused with the Money Weghted Yield (MWY). In the MWY you are just to check the overall appreciation for a period and supposed to ignore the intermittent upheavals. For HPY, you must take into account the periodic gain and loss too. Say for exmple, an investment gained, 15% 1st year, -9% 2nd year and 13% in the 3rd year, its HPY will be around 18%, whereas its Geometric Mean or CAGR would be 5.7%.

Thanks this helps