Question

Using Table 5.3 as your guide, what is your estimate of the expected annual HPR on the market index stock portfolio if the current risk-free interest rate is 4.1%? (Round your answer to 2 decimal places.)

Expected annual HRP ______%

Answer 1

The Holding period return can be found on the grounds of total returns of the portfolio.

The Holding period return is the sum of income and differences in the value of the risk-free rate

Computation the HPR for the market index as follows:

From table 5.3 we can find the avg excess return of large stocks as 8.34

Formula:

HPR   = Avg excess return + risk-free rate

= 8.34% + 4.1%

= 12.44%

Hence, the HPR of the market index is 12.44%

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