The price of a share is $55 at the beginning of the year and $50 at the end of the year. If the share paid a $3 dividend and inflation was 3%, what is the real holding period return for the year?
A)-3.64%
B)-6.36%
C)-6.44%
D)-11.74%

Question

Quizplus · Accepted Answer

The holding period return (HPR) can be calculated as:
HPR = (Ending price + Dividends - Beginning price) / Beginning price

HPR = ($50 + $3 - $55) / $55 = -0.0727 or -7.27%

To calculate the real holding period return, we need to adjust for inflation. 
Real HPR = (1+HPR) / (1+inflation) - 1

Real HPR = (1-0.0727) / (1+0.03) - 1 = -0.0644 or -6.44%

Therefore, the best choice is C, with a real holding period return of -6.44%.

The Price of a Share Is $55 at the Beginning