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

Question restatement:
- We are asked: What is the holding period yield (p.a.) earned by the original investor? The response should be a percentage expressed with 3 decimal places, without the percent sign.

Given there are no answer choices provided, we cannot evaluate alternate options. Instead, we outline the method to compute holding period yield (HPY) and how to annualize it, so you can verify or reproduce the result if you have the underlying data.

Step-by-step reasoning:
1) Identify the cash flows and prices involved:
- P0: the original purchase price of the investment.
- P1: the selling price (or at least the value at the end of the holding period).
- Income: any cash distributions, coupons, dividends received during the holding period.

2) Compute the total return over the holding period (unannualized HPY basis):
- Total return = P1 + Income - P0
- Holding period yield (non-annualized) = Total return / P0
- This yields a decimal, which you would multiply by 100 to express as a percentage if needed.

3) Distinguish between simple HPY and annualized HPY (p.a.):
- If you need the annualized HPY, determine the length of the holding period in years, say h years.
- Annualized HPY (p.a.) = [(P1 + Income) / P0]^(1/h) - 1
- Then convert to a percentage by multiplying by 100 and round to 3 decimal places.

4) Practical checks and pitfalls:
- Ensure that all cash flows are counted in the same currency and timing (e.g., reinvested income versus received as cash).
- If the holding period is not an integer number of years, use the exact fraction for h (e.g., 0.75 years).
- Round the final result to three decimal places, and omit the percent sign as requested.

5) Application to the provided answer (12.151):
- If the stated HPY p.a. is 12.151%, this would correspond to an annualized return of 0.12151 in decimal form.
- To verify, you would need the actual P0, P1, Income, and holding period h. Plug those values into the formula in step 3 and check whether the computed annualized rate matches 12.151% when rounded to three decimals.

6) What to do if data is missing:
- Without P0, P1, Income, and h, you cannot compute the HPY. The question should provide those inputs or a table from which they can be derived. In a real exam, you’d extract P0, P1, and cash flows from the given scenario and then perform the calculation as shown above.

7) Summary in plain terms:
- HPY measures how much you earned over the holding period as a return on the price you paid, including any income.
- To express it per year (p.a.), you use the annualization formula, which accounts for the length of the holding period.
- Always present the final result as a percentage with 3 decimal places and without a percent sign, per the instruction.

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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