Ms. Sharma is a CFA charter holder with expertise in portfolio performance measurement, ensuring the calculation of total returns, including capital gains and income, is accurate.
The **Holding Period Return Calculator** is a fundamental tool for measuring the total return on an investment over a specified period. It calculates the percentage gain or loss, incorporating both capital appreciation/depreciation and any income earned (e.g., dividends, rent). You can solve for the **Holding Period Return (HPR)**, the **Beginning Value (BV)**, the **Ending Value (EV)**, or the **Income Earned (I)**, provided you enter the other three variables.
Holding Period Return Calculator
*Enter any 3 values to solve for the 4th. All values must be in the same currency.
Holding Period Return Formulas
The core HPR formula measures the total gain (capital change + income) relative to the initial cost:
$$ HPR (\%)= \frac{EV - BV + I}{BV} \times 100 $$
Solving for Variables:
1. Solve for Holding Period Return (HPR):
$$ HPR = \frac{EV - BV + I}{BV} \times 100 $$
2. Solve for Ending Value (EV):
$$ EV = BV \times \left(1 + \frac{HPR}{100}\right) - I $$
3. Solve for Beginning Value (BV):
$$ BV = \frac{EV + I}{1 + \frac{HPR}{100}} $$
4. Solve for Income Earned (I):
$$ I = BV \times \left( \frac{HPR}{100} + 1 \right) - EV $$
Formula Source: Investopedia (Holding Period Return)
Variables Explained
- BV (Beginning Value): The initial cost or market value of the investment at the start of the period. (F in input map)
- EV (Ending Value): The final liquidation or market value of the investment at the end of the period. (P in input map)
- I (Income Earned): Any dividends, interest, or rental income received during the holding period. (V in input map)
- HPR (Holding Period Return): The total return expressed as a percentage of the beginning value. (Q in input map)
Related Calculators
Compare the HPR metric with other measures of investment performance:
- Simple Interest Calculator
- Internal Rate of Return Calculator
- Future Value Calculator
- Capital Gains Calculator
What is Holding Period Return?
The **Holding Period Return (HPR)** is a straight-forward measure of the total return an investor earns from holding an investment over a specific, finite period—whether that period is one day or ten years. It accounts for all cash flows during the period, encompassing two components: the capital gain (or loss) from the change in price, and the income received from the asset (e.g., stock dividends, bond interest, or rental income).
HPR is expressed as a simple percentage of the initial investment cost or market value (BV). It is often criticized because it ignores the time value of money and the compounding frequency if the holding period is long. However, its simplicity makes it highly valuable for quick comparisons of investments made at the same time and held for the same duration.
For real estate investments, HPR is especially useful. It allows an investor to easily combine the capital appreciation of the property (difference between sale price and purchase price) with the net rental income generated during the years the property was held, providing a comprehensive measure of the entire investment’s performance.
How to Calculate Holding Period Return (Example)
Let’s calculate the **HPR** for an investment bought for \$10,000 (BV) and sold one year later for \$11,000 (EV), during which it generated \$500 in rental income (I).
- Calculate Total Gain (Numerator):
Total Gain $= EV – BV + I = \$11,000 – \$10,000 + \$500 = \$1,500$
- Apply the HPR Formula:
$$ HPR = \frac{\text{Total Gain}}{BV} \times 100 $$
$HPR = \$1,500 / \$10,000 \times 100$
- Calculate the Return:
$HPR = 0.15 \times 100 = 15\%$
- Conclusion:
The Holding Period Return is 15%. This includes both the \$1,000 capital gain and the \$500 income.
Frequently Asked Questions (FAQ)
No. HPR is a total return for the specified holding period. To get an annualized return, you would need to adjust the HPR using a geometric average formula, like the Compound Annual Growth Rate (CAGR).
Q: Can HPR be negative?Yes. If the Ending Value (EV) plus the Income (I) is less than the Beginning Value (BV), the investor has suffered a net loss, and the HPR will be a negative percentage.
Q: Why do I need to include Income (I)?Income is critical because it represents actual cash flow received by the investor. Excluding dividends or rent would give you only the capital appreciation/loss, which underestimates the true total return of the investment.
Q: Why must Beginning Value (BV) be greater than zero?BV serves as the denominator (divisor) in the HPR formula. If BV is zero, the calculation results in division by zero, which is mathematically undefined. Therefore, BV must be a positive number.