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nism-series-xv-holding-period-return-hpr-with-dividend-example[ RESEARCH ANALYST ]

An investor buys 200 equity shares at Rs. 50 per share and pays a total brokerage commission of Rs. 40. During the 1-year holding period, the investor receives a dividend of Rs. 2 per share. The shares are subsequently sold at Rs. 60 per share with a sales brokerage commission of Rs. 40. What is the total cost, total return proceeds, and the simple Holding Period Return (HPR)?

[ A ]Total Cost = Rs. 10,000; Total Proceeds = Rs. 12,000; HPR = 20.00 percent

[ B ]Total Cost = Rs. 12,000; Total Proceeds = Rs. 10,000; HPR = -16.67 percent

[ C ]Total Cost = Rs. 10,040; Total Proceeds = Rs. 14,000; HPR = 39.44 percent

[ D ]Total Cost = Rs. 10,040; Total Proceeds = Rs. 12,360; HPR = 23.11 percent[ CORRECT ]

Takeaway

Option D is correct: Total Cost = Rs. 10,040; Total Proceeds = Rs. 12,360; HPR = 23.11 percent

Derivation

Calculations for Holding Period Return: Total Cost = (200 shares * Rs. 50) + Rs. 40 purchase commission = Rs. 10,000 + Rs. 40 = Rs. 10,040. Inflows during the period: (1) Total Dividends = 200 shares * Rs. 2 = Rs. 400. (2) Net Sales Proceeds = (200 shares * Rs. 60) - Rs. 40 sales commission = Rs. 12,000 - Rs. 40 = Rs. 11,960. Total Inflows = Dividends (400) + Net Sales (11,960) = Rs. 12,360. Simple HPR = [(Total Inflows - Total Cost) / Total Cost] = [(12,360 - 10,040) / 10,040] = Rs. 2,320 / Rs. 10,040 = 0.23107 (or 23.11%). This tests exact transaction return math with costs. The primary trap is omitting brokerage expenses or dividend income.

Why the others fail

A — Total Cost = Rs. 10,000; Total Proceeds = Rs. 12,000; HPR = 20.00 percent

20.00% completely ignores the Rs. 400 dividend received and omits the brokerage transaction fees from total cost.

B — Total Cost = Rs. 12,000; Total Proceeds = Rs. 10,000; HPR = -16.67 percent

-16.67% incorrectly inverts total cost and proceeds, falsely indicating a capital loss on a profitable trade.

C — Total Cost = Rs. 10,040; Total Proceeds = Rs. 14,000; HPR = 39.44 percent

39.44% is an arbitrary calculation that miscomputes sales proceeds by applying an incorrect terminal share price.