How do I calculate holding return on bonds, common stock, and mutual funds?

Question

The first investment is a bond which was purchased on May 10, 2004, and the purchase price was $20,000 the bond was later sold on May 12, 2005, the sales proceeds were $19,500. Interest on the bond from May 10, 2004 to May 12, 2005, was $2,100.

The second investment was Common stock which was purchased on December 16, 2004, at a cost of $106,000 and sold on December 18, 2005, the stock was sold for $86,456 and a total of $456.00 was received in dividends.

The final investment was a mutual fund which was purchased on January 1, 2004, at a cost of $8,000 and sold one year later with the proceeds being equal to $8,100 the dividends were $654.00 and the capital gains dividends were $1,000.

What is the holding period return of the bond the common stock and the mutual fund?

Answer 1

The return on the bond was 8% - you basically add the sale proceeds (19,500) plus the interest (2100), this total 21600. You then take it away from the purchase price (20,000) to arrive at your net returns ie 1600.  To calculate the returns you divide 1600 by 20,000 and multiple it by 100 – this gives you 8%.

If you did the same calculation for the common stock, you get a minus net return of 19088 which equals minus 18% on the sum invested.

The return on the mutual fund is $754 which equals to a net return of 9.42% (NB – you indicate capital gains dividend of $1000 which I assume was $100 included in the sale price, if you received this $1000 on top on of the $654 and $8100, then the return would be $1754 and this would equate to 21.92%).  

Disclaimer:

The answers above are for guidance only and should not be acted upon without you receiving independent financial advice relevant to your circumstances.  To find and IFA please call 0800 085 3250 or go to http://www.unbiased.co.uk.

Answer 2

1. (19500 + 2100) - 20000 = 1600

    1600 / 20000 = 8%

2. (456 + 86456) - 106000 =  - 19088

    -19088 / 106000 = -18%

3. (8100 + 1000) - 8000 = 1100

   1100 / 8000  = 13.75%