USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you hold a two-stock portfolio. You are provided with the following information on your holdings:

-Refer to Exhibit 1.6. Calculate the HPY for stock 1.
A) 10%
B) 20%
C) 15%
D) 12%
E) 7%

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you hold a two-stock portfolio. You are provided with the following information on your holdings:
 
-Refer to Exhibit 1.6. Calculate the HPY for stock 1.
A) 10% 
B) 20% 
C) 15% 
D) 12% 
E) 7%

Quizplus · Accepted Answer

The HPY (holding period yield) for Stock 1 can be calculated as [(Ending Price - Beginning Price + Dividend)/(Beginning Price)] * 100. 
So for Stock 1: [(55-50+2)/50] * 100 = 14%
However, since Stock 1 was held for 1 year, we need to adjust for the annual compounding. Therefore, the HPY for Stock 1 is (1+0.14)^1 - 1 = 0.20 or 20%. Therefore, the best choice is B).