8. The following table presents select snapshots from the 2015 price and dividen
ID: 2744276 • Letter: 8
Question
8. The following table presents select snapshots from the 2015 price and dividend history of the common stock for 3M, as obtained from Yahoo financial.
Date
Close
Dividends
Adj. Close
12/31/2015
150.64
148.57
11/18/2015
157.39
1.025
155.23
8/19/2015
145.87
1.025
142.93
5/20/2015
161.90
1.025
157.54
2/11/2015
164.48
1.025
159.04
1/2/2015
164.06
157.66
a) Using the closing price and the dividend data provided, what was the holding period return (HPR) for the stock in 2015? b) Using adjusted closing prices only, what was the Total Return for the stock for the year? c) Do your two estimates differ? Why?
Date
Close
Dividends
Adj. Close
12/31/2015
150.64
148.57
11/18/2015
157.39
1.025
155.23
8/19/2015
145.87
1.025
142.93
5/20/2015
161.90
1.025
157.54
2/11/2015
164.48
1.025
159.04
1/2/2015
164.06
157.66
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.
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