On January 1, Nina has a portfolio value of $10,000. On March 1, Nina adds $3,00
ID: 2721249 • Letter: O
Question
On January 1, Nina has a portfolio value of $10,000. On March 1, Nina adds $3,000 of new funds to her portfolio. At the end of the year, Nina has received $200 in dividends, $100 in interest, and the assets in her portfolio have grown in value by $1,100. She does not sell any assets during the year. Find Nina’s holding period return. Show work. Do not round. Hint: Be sure you are using the appropriate holding period return equation. In particular, note that when you add funds to your own portfolio, that doesn’t count as any sort of gain or income.
Explanation / Answer
Opening value of the portfolio =$10,000.
Funds added on March 1,=$3,000.
Holding period of these investments=$3,000, Hence, average investment period=$3,000 *0.8333. Equivalent value of these investments =$3,000*.83333=$2,500.
So, total investment to be considered =$10,000+$2,500 =$12,500.
Interest received=$100.------------(A)
Dividends received=$200.----------(B)
Increase in value of portfolio =$1,100----------(C).
Total return earned+Increase in value of portfoliio =A+B+C
=$1,400.
Holding period return= (return earned during the period+Increase in value of the investment during the period)/Initial investment
=$1,400/$12,500
=11.20%.