Understanding Return , Computing Total Return

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Understanding Return

Section: 2 Computing Total Return

As mentioned at the beginning of this module, the investment return comes from two avenues i.e. capital gains and dividend. Therefore, to compute the total return, simply add dividend and capital gains.

Total return %	=	Change in shares value + Dividend	x	100
		Cost of initial investment

Example: Consider in the previous example of X Company, par value of a share is SR 50.00 and the company paid 10% dividend during the two years.

Total dividend	=	50 x 10% x 100
	=	500
Total return	=	(1,600 + 500) ÷ 8,000
	=	26.25%
Average annual total return	=	26.25% ÷ 2
	=	13.12%

This total return is also referred to as Holding Period Return (HPR) i.e. the total return that one earns by holding the asset for a certain period of time.

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