Holding period return
Okay kiddo, so let's say you got a candy bar from the store today. You plan to eat it tomorrow or maybe even the next week. Holding period return is like figuring out how much your candy bar has changed in value while you were holding onto it.
Just like how the cost of your candy bar could go up or down depending on how much people are willing to pay for it in the future, the value of certain investments like stocks or bonds also change over time based on things like how well the company is doing or what the economy is like.
But we don't know how much our candy bar or investment is worth until we sell it or use it, right? So the holding period return helps us figure out how much money or value we gained or lost during the time we held it.
Let's say you bought your candy bar for $1, but tomorrow someone offers to buy it for $2. That means you made a holding period return of 100% ($1 profit/$1 cost x 100%).
Similarly, if you invest $100 in a stock and it goes up to $110 after a month, your holding period return would be 10% ($10 profit/$100 investment x 100%).
So, holding period return is like seeing how much your candy bar or investment has changed in value while you were holding onto it.
Just like how the cost of your candy bar could go up or down depending on how much people are willing to pay for it in the future, the value of certain investments like stocks or bonds also change over time based on things like how well the company is doing or what the economy is like.
But we don't know how much our candy bar or investment is worth until we sell it or use it, right? So the holding period return helps us figure out how much money or value we gained or lost during the time we held it.
Let's say you bought your candy bar for $1, but tomorrow someone offers to buy it for $2. That means you made a holding period return of 100% ($1 profit/$1 cost x 100%).
Similarly, if you invest $100 in a stock and it goes up to $110 after a month, your holding period return would be 10% ($10 profit/$100 investment x 100%).
So, holding period return is like seeing how much your candy bar or investment has changed in value while you were holding onto it.