Using the data for 3M provided in the last question, Compute the HPR for each on
ID: 2744331 • Letter: U
Question
Using the data for 3M provided in the last question,
Compute the HPR for each one of the five sub-periods presented in the table.
Compute the Total Return for 2015 by compounding the five HPR estimates in a) back to back. How does your estimate compare to the one you obtained in Question 8b above? Why?
Answer a)
HPR = Dividend + Appreciation in stock/Initial Investment
Dividend
Amount
Q1
1.025
Q2
1.025
Q3
1.025
Q4
1.025
Total
4.100
Appreciation in stock (Closing Price)
Price at beginning
164.06
Price at ending
150.64
Appreciation
(13.42)
HPR = 4.10+(13.42)/164.06
HPR = -5.68%
Answer b)
HPR = Dividend + Appreciation in stock/Initial Investment
Dividend
Amount
Q1
1.025
Q2
1.025
Q3
1.025
Q4
1.025
Total
4.100
Appreciation in stock (Adj Closing Price)
Price at beginning
157.66
Price at ending
148.57
Appreciation
(9.09)
HPR = 4.10+(9.09)/157.66
HPR = -3.17%
Answer c)
Yes, Our estimates differ. Because Share price did not
fall, As we expect. Therefore HPR improved.
Answer a)
HPR = Dividend + Appreciation in stock/Initial Investment
Dividend
Amount
Q1
1.025
Q2
1.025
Q3
1.025
Q4
1.025
Total
4.100
Appreciation in stock (Closing Price)
Price at beginning
164.06
Price at ending
150.64
Appreciation
(13.42)
HPR = 4.10+(13.42)/164.06
HPR = -5.68%
Answer b)
HPR = Dividend + Appreciation in stock/Initial Investment
Dividend
Amount
Q1
1.025
Q2
1.025
Q3
1.025
Q4
1.025
Total
4.100
Appreciation in stock (Adj Closing Price)
Price at beginning
157.66
Price at ending
148.57
Appreciation
(9.09)
HPR = 4.10+(9.09)/157.66
HPR = -3.17%
Answer c)
Yes, Our estimates differ. Because Share price did not
fall, As we expect. Therefore HPR improved.
Explanation / Answer
Part A) closing price and the dividend
HPR = (Ending price + dividend received )/ Beginning price -1
= (150.64+ 1.025x4)/164.06 -1
= 154.74/164.06 -1
= -5.68%
Part B) adjusted closing prices
HPR = Ending price/ Beginning price -1
= 148.57/157.66 -1
=-5.77%
Part C
The two estimates give a different answer. They differ as the first estimate uses closing price and dividend whereas second estimate adjusts the dividend and uses adjusted closing price only.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.