Suppose a portfolio has a beginning balance of $200,000 and earns $25,000 in the first period and $15,000 in the second period. Then $60,000 in new funds are added to the account. After that, the portfolio earns $20,000 in the third period and $40,000 in the fourth period. Using the daily valuation method, what is the holding period return over the four periods?
A) 30%
B) 33%
C) 44%
D) 50%

Question

Quizplus · Accepted Answer

The holding period return is calculated by considering the total return over the initial investment. The portfolio grows from $200,000 to $280,000 ($200,000 + $25,000 + $15,000 + $60,000 + $20,000 + $40,000). The holding period return is (($280,000 - $200,000) / $200,000) * 100% = 40%. However, since $60,000 was added, the net gain is $80,000 on an initial $200,000, which is a 40% return. Adjusting for the $60,000 addition, the return is 44%.

Suppose a Portfolio Has a Beginning Balance of $200,000 and Earns