Question

My how time flies! A year ago, Will purchased 100 shares of a sector fund for $12.75 per share. Today, its current NAV is $16.75 per share. During the year that Will owned his shares, the fund paid a total of $0.75 in dividends and realized $0.25 in capital gains. What is Will’s total return from this investment during his one-year holding period?

A. 31.37%

B. 39.22%

Answer 1

Solution:

The formula to calculate the holding period return (HPR) is as follows:

HPR = {(NAV₁ – NAV₀) + DPS + any other income} / NAV₀

         = {($16.75– $12.75) + $0.75 + $0.25} / $12.75

         = 39.22%

Hence, the holding period return is 39.22% per annum.

NAV₁ is the net asset value at the end of the one year.

NAV₀ is the net asset value at which the fund is purchased one year ago.

DPS is the dividend per share received by the holder of the fund for the one year of holding.

Any other income includes any capital gains received or any other amount of income received by the holder of the fund during such one year period.