Can someone explain this? I thought the holding period return formula was End Value/Beg Value - 1?An investor purchased 725 shares of stock at $40 per share and posted initial margin of 60%. He subsequently sold the shares at $50 per share. Based only on this information, the investor's holding period return is closest to:A)40%.B)20%.C)25%.Explanation(50 – 40) / (40 × 0.6) = 41.67%.(Study Session 12, Module 36.2, LOS 36.f)

This is also a poorly written question because it doesn't consider the interest that you have to pay back on the borrowed funds.

Holding period return is:Profit / CapitalProfit per share = $50 - $40 = $10Capital per share = $40 * 60% initial margin = $24Holding period return = 10 / 24 = 41.7%The investor is investing with a margin account, which means they're only putting up 60% of the capital, hence $40 * 60%.

A CFA Level 1 Discussion About Holding Period Return Confusion

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This topic has 3 replies, 3 voices, and was last updated Dec-201:12 am by pcunniff.

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- Analyst0719
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  - CFA Charterholder
  08 Dec 2020 at 9:54 am
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  This is also a poorly written question because it doesn’t consider the interest that you have to pay back on the borrowed funds.
- manteca
  Participant
  07 Dec 2020 at 10:28 am
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  Holding period return is:
  
  Profit / Capital
  
  Profit per share = $50 – $40 = $10
  
  Capital per share = $40 * 60% initial margin = $24
  
  Holding period return = 10 / 24 = 41.7%
  
  The investor is investing with a margin account, which means they’re only putting up 60% of the capital, hence $40 * 60%.
- pcunniff
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  - CFA Level 1
  09 Dec 2020 at 1:12 am
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  @manteca makes more sense now. I think I just was reading too fast and didnt see the margin piece. Clearly its not the full return
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