Holding Period Return [closed]

Question

Bought stock for $12.00$/share. Sold 3 years later at $20$/share. Paid $1$ dividend each year for 3 years. Stock's value at the end of the first year was $18$ and $15$ at the end of the second. Find the holding period of return.

In this example, the work provided is below:

r1= 58.33% r2=-11.11% r3=40%

so HPR=(1.5833*.8889*1.40)-1 = 97.04%

I understand how to find the HPR, but am unsure how r1, r2 and r3 were obtained. I understand this is probably a bit trivial but I am new to this stuff so any help would be great, thanks!

Answer 1

Make a time line like this:

Time  T0      T1        T2         T3
Price 12      18        15         20
Div            1         1          1

Then calculate R1 = (19-12)/12 = 0.5888

R2= (16-18)/18 = -0.1111

R3 = (21-15)/15 = 0.4000