Investment

Unit1 : Introduction

An investment vehicle refers to any asset or method through which an investor can allocate
or invest their money in hopes of generating a return. These vehicles are tools or channels
for investing and can vary based on factors like risk, return potential, liquidity, tax
implications, and investment horizon.

Here are the key characteristics and types of investment vehicles:

Key Characteristics of Investment Vehicles:

1. Return Potential: The primary goal of using an investment vehicle is to generate profits,
either through capital appreciation, interest income, or dividends.

2. Risk: Different investment vehicles carry different levels of risk. Some offer higher returns
but come with higher risks, while others are more secure but provide lower returns.

3. Liquidity: Some investment vehicles are highly liquid, meaning you can easily convert
them to cash (like stocks or bonds), while others may require more time to sell (like real
estate or private equity).

4. Taxation: Some vehicles provide tax advantages (like tax-deferred or tax-exempt returns),
while others might be subject to higher taxes.

5. Maturity: Some vehicles, like short-term investments, have a short maturity period (less
than a year), while others are designed for long-term growth (like stocks or real estate).

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Types of Investment Vehicles:

1. Equity Investments (Common Stocks):

Involves purchasing shares or ownership in a company.

Potential returns include dividends and capital gains (profit from selling stocks at a higher
price than bought).

Risk: Stocks can be volatile and fluctuate in value.

Liquidity: Generally liquid, as stocks can be bought and sold quickly on stock exchanges.

2. Fixed-Income Securities (Bonds, Debentures, etc.):

Debt instruments issued by corporations or governments.

Provide regular interest payments and return the principal at maturity.

Risk: Lower than stocks, but still carries risk (e.g., issuer default).

Liquidity: Bonds can be sold in secondary markets, but liquidity varies depending on the
bond type.

3. Mutual Funds:

A pool of funds from multiple investors that are managed by a professional fund manager.

Risk & Return: The risk and return depend on the assets held within the mutual fund (stocks,
bonds, etc.).

Liquidity: Generally liquid, but redemption may take a few days.

4. Real Estate:

Investment in properties (land, commercial, residential) with the expectation of rental income
or property value appreciation.

Risk: Lower liquidity and potential for significant market fluctuations, but tangible assets.

Return: Income from rents and capital gains from selling the property at a higher price.
5. Derivative Securities (Futures, Options, etc.):

These are financial contracts whose value is derived from the value of an underlying asset
(stocks, commodities, etc.).

Risk: Very high, due to leverage and complexity.

Return: Potential for high returns, but also the risk of significant losses.

6. Short-Term Investments:

Typically low-risk, highly liquid investments like Treasury Bills, Commercial Papers, and
Money Market Funds.

Risk: Very low, often considered risk-free.

Liquidity: High, as these investments can be quickly converted to cash.

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Conclusion:

Investment vehicles are essential for individuals or institutions looking to grow their wealth,
diversify risk, and manage returns. The choice of investment vehicle depends on the
investor's financial goals, risk tolerance, investment horizon, and liquidity needs.

Each vehicle serves a different purpose, so investors often use a combination of vehicles to
balance risk and return in their portfolios.

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1) Short-Term Investment Vehicles

These are assets with a shorter maturity period (usually less than a year) and are
considered low-risk and highly liquid. Some key features include:

High Liquidity & Low Risk

These vehicles can easily be converted into cash with minimal loss in value.

Common Examples:

Treasury Bills (T-bills)

Certificates of Deposit (CDs)

Commercial Papers

Money Market Funds

These options are suitable for investors looking for a safe place to park money temporarily
while earning a small return.

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2) Common Stock

Ownership in a Company:
Buying common stock gives you ownership in a company, meaning you have a claim on its
assets and profits.

Profit through Dividend & Potential Gain:

You can earn income through dividends, which are payments to shareholders.

There's also the potential for capital gains if the stock price increases over time.

Risk & Return:

High Risk due to price fluctuations, but it also offers higher potential returns compared to
safer options.

Voting Rights:

As a shareholder, you may have the right to vote on important company decisions.
3) Fixed Income Securities

These are debt instruments that provide regular income through interest payments. They are
less risky than stocks but offer lower returns.

Regular Income through Interest Payments:

Investors receive fixed, periodic interest payments, making them predictable investments.

Common Examples:

Bonds: Loans to corporations or governments with a promise to repay the principal along
with interest.

Debentures: A type of bond not backed by physical assets but rather by the general
creditworthiness of the issuer.

Preferred Stock: A type of stock that gives priority in dividend payments over common
stockholders, but it typically doesn’t carry voting rights.

Mutual Funds

A mutual fund is a pooled investment vehicle where multiple investors pool their money to
invest in a diversified portfolio of assets. These funds are typically managed by professional
fund managers.

Key Features:

Diversified Portfolio: Investors' money is spread across different assets (stocks, bonds, etc.),
which helps reduce risk.

Managed by Professionals: Fund managers decide where to invest the pooled funds based
on their expertise.

Types of Mutual Funds:

1. Equity Funds: Primarily invest in stocks and aim for capital growth. They carry higher risk
and have the potential for high returns.
2. Debt Funds: Invest in bonds or other fixed-income securities. They provide regular income
with relatively lower risk.

3. Balanced Funds: Invest in a mix of stocks and bonds, balancing risk and return.

4. Money Market Funds: Invest in short-term, low-risk securities like Treasury bills. These
funds are low-risk and provide liquidity.

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Derivative Securities

Derivative securities are financial instruments whose value is derived from the value of an
underlying asset, such as stocks, commodities, or currencies. They are often used for
hedging or speculative purposes.

Types of Derivatives:

1. Futures: Contracts to buy or sell an asset at a future date at an agreed-upon price. Used
for hedging or speculation.

2. Swaps: Agreements between two parties to exchange cash flows or other financial
instruments, often used to manage interest rate or currency risk.

Derivatives can be highly risky and are often used by experienced investors to protect
against losses or bet on price movements of assets.

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Other Investment Vehicles

Real Estate: Investing in property (residential or commercial) to earn rental income or capital
gains from price appreciation.

Tax-Advantaged Investments: These are investments that offer certain tax benefits, like
retirement accounts (e.g., 401(k), IRAs) or municipal bonds.
Tangibles: Physical assets like gold, artwork, antiques, etc. These can provide a hedge
against inflation and a store of value.

Hedge Funds: Pooled funds that employ advanced strategies, like leverage and
short-selling, to generate high returns. These are generally reserved for high-net-worth
individuals.

Cryptocurrency: Digital or virtual currencies that use cryptography for security. They are
highly volatile and speculative but have gained popularity in recent years.

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Making an Investment Plan

An investment plan is essential for guiding how you allocate your money across different
investment vehicles. It helps ensure that your investments align with your financial goals, risk
tolerance, and time horizon.

Steps in Creating an Investment Plan:

1. Set Financial Goals: Define your short-term and long-term financial objectives.

2. Assess Risk Tolerance: Understand your ability to withstand losses and volatility in your
investments.

3. Consider Taxes: Take into account the tax implications of your investments, such as
tax-deferred or tax-exempt options.

4. Evaluate Economic Environment: Consider current economic conditions and how they
may affect different investment vehicles.

5. Monitor & Adjust: Regularly review and adjust your portfolio based on market conditions,
performance, and life changes.

Creating a well-thought-out investment plan helps you make informed decisions and stay on
track to meet your financial goals.
Steps in Investing

1. Establishing Investment Prerequisites

Before investing, investors must ensure that they meet basic financial prerequisites like
building emergency savings and clearing high-interest debts.

2. Meeting Investment Goals

Investment goals usually include:

Accumulating Retirement Funds: Saving for life after retirement.

Enhancing Current Income: Investing to generate additional income.

Saving for Major Expenditures: Such as buying a house, education, or vacations.

Sheltering Income from Taxes: Investing in ways that minimize tax burdens.

3. Adopting an Investment Plan

Investors should create a clear plan that aligns with their goals, risk tolerance, and
investment horizon.

4. Evaluating Investment Vehicles

Study and assess different types of investment vehicles (like stocks, bonds, real estate, etc.)
based on their risk, return, and liquidity.

5. Selecting Suitable Investments

Choose specific investments that match personal financial goals and risk tolerance.

6. Constructing a Diversified Portfolio

Build a portfolio with a mix of asset types (stocks, bonds, real estate, etc.) to spread risk and
maximize potential returns.

7. Managing the Portfolio

Regularly monitor the portfolio, review performance, and make necessary adjustments
based on market conditions and changing personal needs.

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Considering Taxes in Investing

Understanding tax laws is crucial because smart tax management can increase after-tax
income available for investment. Both individuals and businesses must pay taxes on the
income they earn.

1. Types of Personal Taxes:

Income Tax: Tax on salary, business profits, rental income, etc.

Capital Gains Tax: Tax on profit earned from selling an investment (like stocks or property) at
a higher price.

Dividend Income Tax: Tax on dividends received from shares.

Interest Income Tax: Tax on interest earned from savings accounts, bonds, and fixed
deposits.

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Basic Sources of Taxation

Income Tax:

Applied to all forms of income that an individual or a business earns.

Includes salaries, business profits, dividends, interest income, rental income, and capital
gains.
Types of Income

1. Active (Ordinary) Income

Income earned by actively working.

Examples: Salary, wages, tips, business income, professional fees.

2. Portfolio (Investment) Income

Income earned from investments.

Examples: Dividends from stocks, interest from bonds, capital gains from selling
investments.

3. Passive Income

Income earned with minimal or no active involvement.

Examples: Rental income, earnings from a limited partnership, royalties.

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Capital Gains

Capital Gains refer to the profit earned when you sell an investment (like stocks, bonds, or
real estate) for more than what you paid for it.

Two types:

Short-term Capital Gains:

Profits from selling assets held for less than one year.

Taxed at ordinary income tax rates.

Long-term Capital Gains:

Profits from selling assets held for more than one year.

Usually taxed at a lower rate than ordinary income.

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Investment Taxes

When you invest and earn money (through interest, dividends, or capital gains), it is usually
taxable.

Different investments (like mutual funds, stocks, real estate) can create different types of
taxable income.

Proper planning can minimize taxes and maximize after-tax returns.

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Tax-Advantaged Retirement Vehicles

These are special types of investment accounts that offer tax benefits to encourage saving
for retirement.

Examples:

401(k) (Employer-sponsored retirement plan in the U.S.):

Contributions are made before tax; taxes are paid when money is withdrawn at retirement.

Individual Retirement Account (IRA):

Personal retirement savings plan with tax advantages.

Pension Funds:
Retirement funds managed by employers offering tax-deferred growth.

Tax Advantages:

Contributions may be tax-deductible.

Investment growth is often tax-deferred (you pay taxes only when withdrawing).

Some accounts even offer tax-free withdrawals if conditions are met (like Roth IRA in the
U.S.).

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Investing Over the Life Cycle

As people move through different stages of life, their investment strategy usually changes
based on goals, income stability, and risk tolerance.

1. Growth-Oriented Youth (Ages 20–45)

Objective: Capital growth (maximizing returns).

Strategy: Invest more aggressively in stocks, equity mutual funds, and high-growth assets.

Risk Tolerance: High (more time to recover from losses).

2. Middle Age – Consolidation Phase (Ages 45–60)

Objective: Protect accumulated wealth while still growing it moderately.

Strategy: Balanced investment in stocks, bonds, and fixed-income securities.

Risk Tolerance: Moderate (more cautious but still seeking returns).

3. Income-Oriented Retirement (Ages 60 and above)

Objective: Generate steady income and preserve capital.

Strategy: Focus on fixed income securities (bonds, debentures), dividend-paying stocks, and
low-risk investments.

Risk Tolerance: Low (prioritize safety and regular income).

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Investing in Different Economic Environments

The economy moves in cycles, and smart investors adjust their strategy based on the stage
of the cycle.

1. Peak

Economy is at its highest point.

Strategy: Shift toward safer investments (bonds, defensive stocks) because a downturn may
follow.

2. Decline

Economic slowdown or recession.

Strategy: Invest cautiously; defensive sectors (like utilities, healthcare) may perform better.

3. Trough

Economy hits the lowest point.

Strategy: Prepare to invest in growth assets (stocks) as recovery starts.

4. Recovery

Economy starts growing again.

Strategy: Invest aggressively in growth stocks and cyclical industries (like construction,
tech).

5. Expansion

Strong economic growth.

Strategy: Continue investing in growth and cyclical sectors.

6. (Another) Peak

Cycle repeats; again shift toward safer assets.

Chapter 2
### **Chapter 2: Securities Market – Detailed
Explanation**

#### **1. What is a Securities Market?**

A **Securities Market** is a marketplace where financial instruments like
stocks, bonds, and derivatives are bought and sold. It acts as a bridge
between investors (who supply capital) and companies/governments
(who need funds).

- **Financial Market** = A system that facilitates the exchange of funds

between investors and borrowers.
- **Securities** = Tradable financial assets (e.g., shares, bonds, mutual
funds).

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### **Types of Securities Markets**

#### **A. Primary Market (New Issue Market)**

- **Definition:** Where companies issue **new securities** for the first
time to raise capital.
- **Key Features:**
- Direct transaction between issuer (company) and investors.
- No resale (only fresh securities are sold).
- Helps companies raise funds for expansion, debt repayment, etc.

**Types of Primary Market Offerings:**

1. **IPO (Initial Public Offering)**

- A company’s **first sale** of shares to the public.
- Example: A startup going public by listing on the stock exchange.

2. **FPO (Follow-on Public Offering)**

- Additional shares issued by an **already listed company**.
- Example: A well-known company raising more funds by issuing new
shares.

3. **Right Issue**
- Existing shareholders get the **right to buy additional shares** at a
discount.
- Example: A company offers extra shares to current investors before
the public.

4. **Private Placement**
- Shares sold to **select investors** (e.g., banks, mutual funds) instead
of the public.
- Example: A company raising funds from a venture capitalist.

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#### **B. Secondary Market (Stock Market)**

- **Definition:** Where **already-issued securities** are traded among
investors (e.g., NSE, BSE).
- **Key Features:**
- No direct company involvement (only investors trade).
- Provides **liquidity** (easy buying/selling of shares).
- Prices fluctuate based on demand and supply.
**Example:** Buying shares of Reliance from another investor (not from
Reliance directly).

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### **Role of Financial Intermediaries (Investment Banks)**

Intermediaries like **underwriters, brokers, and merchant banks** assist
in the issuance and sale of securities.

**Functions:**
1. **Underwriting** – Guaranteeing the sale of shares at a fixed price.
- If shares remain unsold, the underwriter buys them.
2. **Advisory Services** – Helping companies decide IPO pricing, timing,
etc.
3. **Distribution** – Selling shares to the public (via brokers).
4. **Commission Earnings** – Charging fees per share sold (e.g., ₹2 per
share).

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#IPO/FPO Process Step-by-Step

1. **Company Decision**
- The firm decides to raise funds via IPO/FPO.

2. **Appointing Underwriters**
- Investment banks are hired to manage the issue.

3. **Drafting Prospectus**
- A legal document with company details (financials, risks, use of
funds).

4. **Filing with SEBON (Securities Board)**

- Regulatory approval is sought (e.g., SEBI in India).

5. **SEBON Review**
- Authorities verify the prospectus for accuracy.
6. **Prospectus Approval**
- SEBON approves, and the issue gets a green light.

7. **Issue Opens & Closes**

- Public can subscribe to shares for a fixed period (e.g., 3 days).

8. **Allotment & Listing**

- Shares are allotted to investors and listed on stock exchanges for
trading.

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### **Conclusion**
- **Primary Market** = New securities (IPO, FPO).

- **Secondary Market** = Trading of existing shares (Stock Exchange).

- **Intermediaries** help companies issue shares and connect with
investors.

This system ensures smooth capital flow in the economy, helping

businesses grow while giving investors opportunities to profit.

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Secondary Market

Definition: The secondary market is a place where already existing

(second-hand) securities are traded between investors. It facilitates the
transfer of ownership from one investor to another.
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Flow of Funds:

Investor → Security → Investor

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Objectives of the Secondary Market:

1. Provide Liquidity: Ensures easy buying and selling of securities.

2. Price Determination: Based on the interaction of supply and demand.

3. Continuous Trading: Offers ongoing buying and selling opportunities.

4. Risk Diversification: Investors can switch between various securities.

5. Efficient Allocation of Resources: Moves capital to productive

investments.

6. Promotes Economic Growth: By encouraging investment.

7. Boosts Investor Confidence: Due to transparency and liquidity.

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Types of Secondary Market:

A. Stock Exchange Market

Listed: Fixed place, fixed time, regulated trading through brokers.

Unlisted (Dislisted): Not traded on a formal stock exchange.

Trading Methods:
a. Auction Trading – Conducted through stock exchanges.
b. Through Dealers – Direct transactions via intermediaries.
c. Bargain Trading – Negotiated trading between buyers and sellers.

B. Over-the-Counter (OTC) Market:

Trading of securities not listed on formal exchanges.

More flexible and less regulated.

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General Market Conditions:

1. Bull Market: Prices are rising, optimistic investor sentiment.

2. Bear Market: Prices are falling, pessimistic investor sentiment.

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Basic Types of Transactions

1. Long Purchase (Long Position)

A long position refers to buying a security at a low price and holding it
with the expectation that the price will rise in the future, allowing the
investor to sell it at a higher price and earn a profit.

Investor’s belief: The stock price will go up.

Steps:

●​ Buy → Hold → Sell

Profit Potential:

Unlimited Profit

Limited Loss (maximum loss = invested amount)

Types of Long Transactions:

i. Cash Trading – Full payment is made during purchase.

ii. Margin Trading – Buying securities by borrowing funds from a broker

(leverage).

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i. Cash Trading:

When the investor purchases securities by paying the full amount in

cash, it is known as cash trading.

No loan is involved.

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ii. Margin Trading:

When an investor buys securities using a combination of cash and a

loan from a brokerage firm, it is called margin trading.

The brokerage firm provides the loan to complete the investment.

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Key Terms:

1. Initial Margin (IM):

●​ The amount of cash the investor contributes during margin trading.

●​ If IM = 100%, it is considered cash trading (no loan involved).

●​ If IM < 100%, it is considered margin trading (loan involved).

2. Loan Margin:

The percentage of the investment provided as a loan by the brokerage

firm.

The loan amount remains constant throughout the long position unless
repaid or adjusted.

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Indicators of Long Position:

Words that help identify a long position include:

●​ Purchase

●​ Investment

●​ Buy

●​ Bull / Bullish

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Actual Margin (AM):

Definition: Actual Margin is the ratio of Equity to Market Value of Assets

(MVA), expressed as a percentage.

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Formulas:

1. MVA (Market Value of Assets)

= Number of Shares (N) × Price per Share (P)

2. Loan (Debt)
= N × P₀ × (1 - IM)
(P₀ = Purchase price, IM = Initial Margin)
(Loan remains constant in long position)
3. Equity
= MVA – Loan

4. Actual Margin (AM)

= (Equity / MVA) × 100
= [(MVA – Loan) / MVA] × 100

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Example:

You purchase 500 shares of Nabil Bank at Rs. 700/share. Initial Margin
(IM) = 40%.

A) At Purchase Time (P₀ = Rs. 700):

N = 500, P₀ = 700, IM = 40%

1. MVA = 500 × 700 = Rs. 3,50,000

2. Loan = 3,50,000 × (1 – 0.40) = Rs. 2,10,000

3. Equity = 3,50,000 – 2,10,000 = Rs. 1,40,000

4. AM = (1,40,000 / 3,50,000) × 100 = 40%

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B) When Price Increases to Rs. 800:

P₁ = 800, so MVA = 500 × 800 = Rs. 4,00,000

1. Loan remains Rs. 2,10,000

2. Equity = 4,00,000 – 2,10,000 = Rs. 1,90,000

3. AM = (1,90,000 / 4,00,000) × 100 = 47.5%

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C) When Price Decreases to Rs. 600:

P₁ = 600, so MVA = 500 × 600 = Rs. 3,00,000

1. Loan = Rs. 2,10,000

2. Equity = 3,00,000 – 2,10,000 = Rs. 90,000

3. AM = (90,000 / 3,00,000) × 100 = 30%

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Short Sale / Short Position:

Definition: A short sale is the process where an investor borrows shares
from a broker and sells them in the market, expecting the price to fall.
Later, they buy back the shares at a lower price and return them to the
broker.

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Steps in Short Sale:

1. Borrow shares from broker.

2. Sell them at current (higher) market price.

3. Wait for price to fall.

4. Buy back shares at a lower price.

5. Return shares to broker.

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Key Concepts:

Profit: When price falls, the difference between selling price and buying
price.

Loss: If price rises, the loss can be unlimited.

Loan (Obligation): Value that must be returned to the broker.

Loan = N × P₁ (P₁ = buyback/ending price)

Assets: Total value held with broker = Proceeds from short sale + Margin
deposit.

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Actual Margin (AM) in Short Sale:

Formula:

AM = (Equity / Loan) × 100

Where,

Assets = N × P₀ × (1 + IM)
(P₀ = Initial sell price, IM = Initial margin %)

Loan = N × P₁
(P₁ = Price at which shares are repurchased)

Equity = Assets – Loan

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Variables Explained:

N = Number of shares sold short

P₀ = Initial sell price (at short sale)

P₁ = Buyback price (later when price changes)

IM = Initial Margin % (required deposit)

Note on Actual Margin (AM) in Short Position:

Relationship:
There is a negative (inverse) relationship between price and Actual
Margin (AM) in a short position.

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What This Means:

When price increases → AM decreases

(Because the investor must buy back at a higher price, reducing equity.)

When price decreases → AM increases

(Because the investor can buy back at a lower price, increasing equity.)

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Why This Happens:

Loan = N × P₁ → as P₁ increases, Loan increases

Assets stay constant → so Equity = Assets – Loan decreases

Therefore, AM = (Equity / Loan) × 100 also decreases

Holding Period Return (HPR) under Short Sale

HPR measures the percentage return earned from a short sale over the
holding period.

Interpretation of Results:

If P drops → HPR increases (profit rises)

If P rises → HPR decreases (loss risk grows)

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Note:
There is a negative/inverse relationship between price and HPR in short
selling.

This means:
When price increases → HPR decreases
When price decreases → HPR increases

Short seller balance sheet after short position

Liabilities and equity Amount

Loan [N ×P1] xxx
Equity [A - L] xxx
Total liabilities and xxx
equity

Assets Amount
Assets xxx
[N×P0(1+IM)]
Total assets xxx

Margin Call conditions under Short Position. Here's the revised and
verified version:

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i) Based on Trigger Price (TP)

Formula:

Where:

IM = Initial Margin

mm = Maintenance Margin

Po = Initial short sale price

Decision:

If Market Price > TP → Margin Call received

If Market Price < TP → No Margin Call

If Market Price = TP → No Margin Call

> Note: Your previous formula TP = (1 + IM) × Po is used only if mm is

not given, which is rare. The corrected formula compares current price
vs required maintenance condition.

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ii) Based on Actual Margin (AM) and Maintenance Margin (mm)

Formula:

Where:
Assets = NxPo × (1 + IM) (fixed)

Loan = NxP (based on current price)

Decision:

If AM < mm → Margin Call

If AM ≥ mm → No Margin Call

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iii) Based on Actual Collateral & Minimum Required Collateral

Actual Collateral = NxPo × (1 + IM)

Minimum Collateral = Loan × (1 + mm) = NxP × (1 + mm)

Decision:

If Actual Collateral < Minimum Collateral → Margin Call

If Actual Collateral ≥ Minimum Collateral → No Margin Call

Unit 4: Risk, Return and Portfolio Management:

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Concept of Risk and Return

1) Return:
Return is the gain or loss made from an investment.

It is the difference between terminal (final) wealth and initial wealth.

Return includes capital gain/loss and income (like dividends or interest).

2) Risk:

Risk is the uncertainty or variability in returns.

It represents the possibility of loss or lower-than-expected returns.

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Relationship between Risk and Return:

Higher Risk → Higher Expected Return

Lower Risk → Lower Expected Return

This is based on the risk-return tradeoff principle.

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Types of Risk Preferences:

a) Risk Seeker

Prefers high-risk investments.

Expects higher return and is willing to take more risk.

b) Risk Neutral

Focuses only on return, not concerned about risk.

Chooses investment purely based on expected return.

c) Risk Averse

Prefers lower risk, even if return is also lower.

Requires risk premium (extra return) to accept risk.

Who are Risk-Averse Investors?

Risk-averse investors are those who prefer lower risk investments, even
if the returns are lower.

They avoid uncertainty and only invest in high-risk assets if they are
offered a risk premium (extra return for bearing risk).

Their goal is capital protection and stable returns, not high profits.
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Components of Return:

a) Current Income:

Income received during holding period, such as:

Dividend from stock

Interest from debt instruments (e.g., bonds)

b) Capital Gain or Loss:

The change in the price of an asset.

Formula:

Capital Gain/Loss = Ending Price (P) – Beginning Price (Po)

Measuring Return (for Single Asset):

1. Rupee Return:

Rupee Return = P– Po+D,or(C)

P = Ending price

Po = Beginning price

D = Dividend/Interest income
C= cash income
1. Percentage Return or Holding Period Return (HPR):
HPR= P–Po+D/ Po × 100

1. Capital Gain Yield:

P-Po/ Po × 100

1. Current Yield:

D/ Po × 100

1. Total Gain (Return):

Capital Gain Yield + Current Yield

Diagram:
A horizontal line segment is shown with points marked as P_1, P_2, and
P_3 sequentially from left to right. An initial point P_0 is implied to the left
of P_1. Arrows indicate the intervals between these points.