I am confused with this whole calculation of HPR here, so these are the details: To illustrate the money-weighted return, consider an investment that covers a two-year horizon. At time t = 0, an investor buys one share at $200. At time t = 1, he purchases an additional share at $225. At the end of Year 2, t = 2, he sells both shares for $235 each. During both years, the stock pays a per-share dividend of $5. The t = 1 dividend is not reinvested.
And this is how it is explained: In the first year, the portfolio generated a one-period holding period return of ($5 + $225 − $200)/$200 = 15 percent. At the beginning of the second year, the amount invested is $450, calculated as $225 (per share price of stock) × 2 shares, because the $5 dividend was spent rather than reinvested. At the end of the second year, the proceeds from the liquidation of the portfolio are $470 plus $10 in dividends So in the second year the portfolio produced a holding period return of ($10 + $470 − $450)/$450 = 6.67 percent. The mean holding period return was (15% + 6.67%)/2 = 10.84 percent.
can someone please explain? Thank you so much!