Jason purchased ABC stock at $40 per share and DEF stock at $35 per share on the same day in 2020. Exactly 6 months later, the ABC stock is worth $42.00 per share and has not paid a dividend while the DEF stock is worth $36 per share and has paid 2 quarterly dividends of $0.50 each. The holding period returns are
A) ABC, $2.00 and DEF $2.00.
B) ABC 5% and DEF 2.9%.
C) ABC 5% and DEF 5.7%.
D) The holding period return cannot be determined because we do not know the discount rate.

Question

Quizplus · Accepted Answer

The holding period return (HPR) for ABC stock is calculated as the change in price plus dividends (if any) divided by the initial price. For ABC, this is ($42 - $40) / $40 = 5%. For DEF, the HPR includes dividends, so it's (($36 - $35) + $1) / $35 = 5.7%.

Jason Purchased ABC Stock at $40 Per Share and DEF