 Ask Remember Me? scottmpi Posts: 1, Reputation: 1 New Member #1 Jun 9, 2009, 06:11 AM
Calculation of Annual holding period return (gross)
How do you calculate the expected Annual Holding Period Return (gross) ArcSine Posts: 969, Reputation: 106 Senior Member #2 Jun 11, 2009, 08:51 AM
The correct answer might turn on some omitted details, so I'll supply a couple of assumptions--you can correct as needed.

1. I'll assume the asset in question produces no interim cash flows. Ya buy it, and on the horizon date you sell it; nothing happens in the interim other than the asset's appreciation or depreciaton.

2. When you say "expected", it usually means you've got a range of possible outcomes (future selling prices for the asset), and for each outcome there is an associated probability.

If we're cool so far, then it's just [(E(F) / P) ^ (1/n)] - 1

where E(F) is your probability-weighted expected future value; P is the asset's present cost; and n is the number of periods (years, in this case) of your total holding period.

It might look familiar--the 'Annual Holding Period Return' is just the geometric mean of the overall change in the asset's value, with one period = one year.

Hope this helps!

...it was early and I was full of no coffee...

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