Josh purchased 200 shares of HAR stock at $25.30 per share and sold it 9 months later for $27.20. HAR does not pay a dividend. At the same time, he bought 500 shares of WIG for
$9)15 a share. He sold WIG for $9.65 one year later. During the year, WIG paid 4 quarterly dividends of $0.07 each. The most useful way to compare the holding period returns on these stocks is to
A) Multiply the 9 month return on HAR by 12/9.
B) Divide the 9 month return on HAR by 9/12.
C) Divide the 1 year return on WIG by 9/12.
D) The two holding period returns cannot be compared.

Question

Quizplus · Accepted Answer

To compare the holding period returns (HPR) of two investments over different periods, it's useful to annualize the returns. For HAR, which was held for 9 months, multiplying its return by 12/9 converts the 9-month return to an equivalent annual return, allowing for a direct comparison with WIG's 1-year return.

Josh Purchased 200 Shares of HAR Stock at $25