Question

One month ago, a share was worth $192. Today it is worth $216. What is the 1-month return on the stock?

Answer 1

The values provided in the question are as below:

1) Previous month's price of the share (Initial price) = $192
2) Current price of the share = $216

We are required to calculate 'One month return' which is also known as holding period return.

Holding Period Return (HPR) is the total return received from an investment/security/portfolio over a period of time.

HPR has two components:
1) Income
2) Price change i.e. Price appreciation or depreciation

In the given example, we are not provided with any income component hence we will ignore it (or alternatively we can treat it as zero. In either case will get the same result)

Price change for the current month is calculated as = Current month price - Previous month price (i.e. Initial Price)
which is => $216- $192 = $24

Formula for calculating HPR i.e. One month return is =

Therefore one month return = = 0.125 or 12.5 %

Answer: One month return on the stock with initial value $192 and current value $216 is 12.5 %

Additional Notes:
1) Calculating return using the above 2 component is called "Total Return".
2) If the current month price would have decreased, this Numerator would have Negative value indicating loss /price depreciation.
3) This return is not an annual return. Annualised holding period return is calculated using formula:
Where HPR is the periodic return, N is the no of total periods. In our example N will be 12.

I hope this explanation and additional notes were helpful. Please share you feedback. Thank you.