What is the difference between an expected return and a total holding period return?
The holding period return reflects past performance. The expected return is a return that is based on the probability-weighted average of the possible returns from an investment. It describes a possible return (or even a return that may not be possible) for a yet- to-occur investment period.
Holding period return is the total return received from holding an asset or portfolio of assets over a period of time, known as the holding period, generally expressed as a percentage. Holding period return is calculated on the basis of total returns from the asset or portfolio (income plus changes in value).
Total return is used when analyzing a company's historical performance. Calculating expected future return puts reasonable expectations on an investor's investments and helps plan for retirement or other needs.
The expected return (or expected gain) on a financial investment is the expected value of its return (of the profit on the investment). It is a measure of the center of the distribution of the random variable that is the return.
The holding period return is the total return from income and asset appreciation over a period of time expressed as a percentage. The holding period return formula is: HPR = ((Income + (end of period value - original value)) / original value) * 100.
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Expected return = (return A x probability A) + (return B x probability B).
- First, determine the probability of each return that might occur. ...
- Next, determine the expected return for each possible return.
Capital appreciation — the stock price rising in value — and dividends are the two ways you can earn a return as a common stockholder.
The expected return is the amount of profit or loss an investor can anticipate receiving on an investment. An expected return is calculated by multiplying potential outcomes by the odds of them occurring and then totaling these results.
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For a simple example calculation of the cost of equity using CAPM, use the assumptions listed below:
- Risk-Free Rate = 3.0%
- Beta: 0.8.
- Expected Market Return: 10.0%
Short-Term or Long-Term
Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
Do you pay taxes on stock you hold?
You pay capital gains taxes on stocks you sell for a profit and on dividends you earn as a shareholder. Keep your tax bill down by holding stocks for at least a year and using tax-deferred retirement or college accounts.
The Holding Period Return (HPR) measures the total return earned on an investment, inclusive of the capital gain and income (e.g. dividends, interest income).
If you sell a stock security too soon after purchasing it, you may commit a trading violation. The U.S. Securities and Exchange Commission (SEC) calls this violation “free-riding.” Formerly, this time frame was three days after purchasing a security, but in 2017, the SEC shortened this period to two days.
