Scenario: Bob and I are looking at AT&T\'s stock because we are both very wealth

Question

Scenario: Bob and I are looking at AT&T's stock because we are both very wealthy stock market investors. We usually spend summers together in the Swiss Alps (at his expense…you see, he likes me and we are pals). We agree on the expected dividend AT&T will be paying. For your information, Bob has come up with an ironclad formula for projecting future dividend growth. He has franchised this information and made over $20 million on the formula in the last four years. We also agree on the level of risk for the stock (I had to buy this formula from him also). I hold my stock for two years. Bob holds his stocks for 10 years. The question is, should we or should we not pay the same price for the stock? Why or why not? (I've just got to make more than he does this year.)

Explanation / Answer

Since AT & T is high divedent paying stock , the more you hold the stock in your portfolio the higher divedends you will get.

If both of you buy the stock today both will have to pay the same market price.But sice the stock is a good divedend paying stock the person who holds it for longer time will make more money.Since the risk profile is known, the capital gains will be similar if you dispose the stock after 2 years or 10 years, considering Time Value of money.

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