Final answer:
Yes, dividends should be included when calculating the Holding Period Return (HPR) as they are a crucial component of the total return on an investment, alongside capital gains.
Step-by-step explanation:
When calculating the Holding Period Return (HPR) of a stock investment, dividends should definitely be taken into account if they are paid during the investment period. HPR is a measure of the total return from an investment, and it includes both capital gains and any income, such as dividends, received from the investment. Capital gains refer to the increase in value of the stock from the purchase price to the sale price, while dividends are a portion of a company's profits that are distributed to shareholders. Considering that the HPR reflects the total performance of an investment, omitting dividends would provide an incomplete picture of the investment's return.
For example, if a stock pays a dividend, a shareholder who owns shares receives a direct payment proportional to the number of shares they own. For example, if a stock pays a dividend of 75 cents per share, and an investor owns 85 shares, they will receive a monetary benefit. In historical market performance analysis, such as with the S&P 500 index, returns include both dividends and capital gains, illustrating that both are integral to understanding an investment's performance.