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An investor buys 100 shares of a $40 stock that pays an annual cash dividend of $2 a share (a 5 percent dividend yield) and signs up for the dividend reinvestment plan.
a) If neither the dividend nor the price changes, how many shares will the investor have at the end of ten years? How much will the position in the stock be worth?
Number of shares=(100*1.05^10) = 162.889 Stock worth=162.889*40 = $6515.58
b) If the price of the stock rises by 6 percent annually but the dividend remains at $2 a share, how many shares are purchased each year for the next ten years? How much is the total position worth at the end of ten years?
4.858 shares repurchased total ending shares 152.093 3344.40 179.084*40= 7,163.36
c) If the price of the stock rises by 6 percent annually but the dividend rises by only 3 percent annually, how many shares are purchased each year for the next ten years? How much is the total position worth at the end of ten years? Since dividend plans credit fractional shares, use three decimal places in parts (b) and (c).
Please show work, please do not copy and paste an answer from justanswer.com I need to see how the solution was obtained FOR ALL 3 Questions.
May 14 2020 View more View Less
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