1) An investor buys 100 shares of a $40 stock that pays an annual cash dividend

Question

1) An investor buys 100 shares of a $40 stock that pays an annual cash dividend of $2 a share ( a 5% dividend yield) and signs up for the dividend reinvestment plan
a) If neither the dividend nor the price changes, how many s hares will the investor have at the end of 10 years? How much will the position in the stock be worth?
b) If the price of the stock rise by 6% annually but the dividend remains at $2 a share, how many shares are purchases each year for the next 10 years? How much is the total position worth at the end of 10 years?
c) If the price of the stock rises by 6% annually but the dividend rises by only 3% annually how many shares are purchased each year for the next 10 years? How much is the total position worth at the end of 10 years? Since dividend plans credits fractional shares, use three decimal places in parts a and c

Explanation / Answer

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