Overview

Main Menu Name: HPR

Compares two investments with respect to gain (or loss), total return, and holding period return.

In this article:

• Background
• Why should I use this calculator?
• Getting Started
• Entering Data
• Results

Background

Holding Period Return (HPR) is the total return earned from holding an investment from a specified period of time. It represents the sum of current income as well as any gains or losses during the holding period divided by the beginning investment value.

The formula for determining holding period return is:
HPR = [current income gain (or loss)] / beginning investment value

This equation assumes that gain or loss is equal to the ending investment value less the beginning investment value.

HPR provides a quick and simple method for measuring the total return realized on or projected from an investment. The major flaw associated with the use of the HPR method is its failure to consider the time value of money. For instance, assume two investments, each requiring a $10,000 outlay, each projected to return $1,000 over a one-year holding period, and each expected to retain its original value. If one of the two returns $1,000 at the end of six months while the other pays $1,000 at the end of the year, obviously, the first investment is preferable (assuming equal safety of principal).

Since it is generally best to receive a given return sooner than later, time is a critical factor in the process of evaluation and selection of investments.

Why should I use this calculator?

• To compare investments of different size.
• To ascertain the relative efficiency of an investment since return per invested dollar tends to reflect the productivity of the investment.

Getting Started

Holding Period Return (HPR) is the total return earned from holding an investment from a specified period of time. It represents the sum of current income as well as any gains or losses during the holding period divided by the beginning investment value.

The formula for determining holding period return is:

This equation assumes that gain or loss is equal to the ending investment value less the beginning investment value.

HPR provides a quick and simple method for measuring the total return realized on or projected from an investment. The major flaw associated with the use of the HPR method is its failure to consider the time value of money. For instance, assume two investments, each requiring a $10,000 outlay, each projected to return $1,000 over a one-year holding period, and each expected to retain its original value. If one of the two returns $1,000 at the end of six months while the other pays $1,000 at the end of the year, obviously, the first investment is preferable (assuming equal safety of principal).

Since it is generally best to receive a given return sooner than later, time is a critical factor in the process of evaluation and selection of investments.

Entering Data

1. Value at Beginning of Period:  Enter the beginning value of investment #1 and #2.
2. Value at End of Period:  Enter the ending value of investment #1 and #2.
3. Current Income for Period:  Enter the amount of income or interest earned from the investment.

Results

The gain or loss of the two investments is calculated. Then the program takes any income paid by the investment, and calculates the total return (positive or negative) for each of the two investments. Then, the percentage return (or loss) during the period of each investment is calculated.