Question

PERIOD   JAZMAN   SOLOMON
1 8 26
2 10 27
3 9 32
4 14 31

a. Compute the​ holding-period returns for Jazman and Solomon for periods​ 2, 3 and 4.

Hint​:

Calculate the​ holding-period return against the previous period. In other​ words, holding-period returns from period 1 to​ 2, from period 2 to 3 and from period 3 to 4.

b. How would you interpret the meaning of a​ holding-period return?

Answer 1

Solution

a) Holding period return =( investment at current period - investment at previous period )/investment at previous period

Holding period return for period 2:-

JAZMAN = (10-8)/8= 2/8=25%

SOLOMON= (27-26)/26= 1/26= 0.03846=3.85%

Holding period return for period 3:-

JAZMAN= (9-10)/10= -1/10= -10%

SOLOMON= (32-27)/27= 5/27= 18.52%

Holding period return for period 4:-

JAZMAN = (14-9)/9= 5/9= 55.56%

SOLOMON = (31-32)/32=1/32= 3.125%

b) Holding period return is defined as the rate of return on the asset over the period of holding the asset.