Holding Period Return (HPR)

How to Calculate Holding Period Return (HPR)

Conceptually, HPR refers to the return received on an investment (or portfolio of securities) throughout the period during which the investment was held.

The holding period return (HPR) metric is composed of two-income sources: capital appreciation and dividend (or interest) income, expressed as a percentage.

1. Capital Appreciation: Sale Price > Purchase Price
2. Income: Dividends and/or Interest Income

More specifically, an investor can earn returns in the form of capital appreciation (i.e. selling the investment at a price higher than the purchase price) and receive income, such as dividends or interest income.

• If the investment is in a company’s shares, dividends represent the income source of the equity shareholders.
• If the investment is in debt securities, interest would be the income received by the bondholders.

Holding Period Return Formula (HPR)

Calculating the HPR starts by subtracting the beginning value of an investment from the ending value to arrive at the capital appreciation value, i.e. the capital gain.

The capital appreciation formula – i.e. ending value minus beginning value – measures how much an investment how grown (or declined) in price since the initial purchase.

A capital gain occurs if the sale price exceeds the purchase price, whereas if the security was sold for less than the initial price paid on the original date of purchase, the investment would be sold for a capital loss.

The amount of income received is then added to the capital appreciation in the next step.

The resulting figure represents the total return, i.e. the sum of the capital appreciation and income.

With the numerator calculated, the final step is to divide by the beginning investment value, as shown by the formula below.

The return can also be calculated using the following formula if the investment consists of stocks.