How to Calculate the Annualized Holding Period Return
Original post by Mark Kennan of Demand Media
The holding period return, or HPR, calculates the overall rate of return for the time that you held a particular investment. Since people hold investments for varying periods of time, finding the annual rate of return from the overall holding period return allows you to compare how well various investment performed over a common time period. To figure the annualized holding period return, you need to know the periodic returns on the investment and how long you held the investment.
Divide the periodic rates of return on your investment by 100 to convert to decimals. For example, if your portfolio earn 10 percent the first year, lost 9 percent the second year and gained 5 percent the third year, divide 10, -9 and 5 by 100 to get return rates of 0.1, -0.09 and 0.05.
Add 1 to each periodic rate of return. In this example, add 1 to 0.1, -0.09 and 0.05 to get 1.1, 0.91 and 1.05.
Multiply the sums of the periodic returns plus 1 by each other to calculate the total return for the holding period. In this example, multiply 1.1 by 0.91 by 1.05 to get 1.05105.
Divide the total return for the holding period by the number of years in the holding period. In this example, since you held the portfolio for three years, divide 1 by 3 to get 0.3333.
Raise the total return for the holding period to the Step 4 result. In this example, raise 1.05105 to the 0.3333 power to get 1.016733355.
Subtract 1 to find the annualized holding period return. In this example, subtract 1 from 1.016733355 to find the annualized holding period return equals 0.016733355, or about 1.67 percent per year.
About the Author
Mark Kennan is a freelance writer specializing in finance-related articles. He has worked as a sports editor for "Ring-Tum Phi" and published articles on a number of online outlets. Kennan holds a Bachelor of Arts in history and politics from Washington and Lee University.