Question11 (c) What is the holding period yield (p.a.) earned by the original investor? [2 marks] [input] Your response must be entered as a percentage with 3 decimal places and excluding the percentage sign (%). Maximum marks: 2 Flag question undefined

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BlackTom AI · Accepted Answer

To determine the holding period yield (annualized) for the original investor, we first identify the key components needed for the calculation: the initial investment price (P0), the value at the end of the holding period (P1), and any cash distributions (D) received during the period. Without these values, we cannot compute a numeric result.

Step 1: Compute the holding period return (HPR).
- The formula for the holding period return is HPR = (P1 - P0 + D) / P0.
- This represents the total return earned over the entire holding period, expressed as a fraction of the initial investment.

Step 2: Convert the holding period return to an annualized rate (HPR annualized).
- If the holding period lasts t years (where t is the fraction of a year, e.g., 0.5 for six months), the annualized holding period yield is:
  HPR_annualized = (1 + HPR)^(1/t) - 1.
- If t is exactly 1 year, HPR_annualized reduces to HPR, so no exponentiation is needed.

Step 3: Express the result as a percentage with three decimal places and without the percent sign.
- Multiply the final decimal by 100, or equivalently format as a percentage with three decimals, then remove the trailing % symbol.

Important considerations and potential pitfalls:
- Ensure D includes any cash dividends, coupon payments, or other distributions received during the holding period.
- If there are multiple cash flows, sum them into D for the holding period calculation rather than treating them separately.
- If the holding period is not an exact number of years, use the precise t in years (for example, 18 months equals t = 1.5).

Example (illustrative, not using real numbers):
- Suppose P0 = 100, P1 = 110, and D = 2 over a holding period of 1 year (t = 1).
- HPR = (110 - 100 + 2) / 100 = 0.12.
- HPR_annualized = (1 + 0.12)^(1/1) - 1 = 0.12.
- As a percentage with three decimals: 12.000.

In your task, you will need to plug in the actual values for P0, P1, D, and t to compute the numeric result, then format it as a percentage with three decimal places and no percent sign.

Question11 (c) What is the holding period yield (p.a.) earned by the original investor? [2 marks] [input] Your response must be entered as a percentage with 3 decimal places and excluding the percentage sign (%). Maximum marks: 2 Flag question undefined

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