Smith buys 100 shares of stock ABC at the same time Brown buys 100 shares of...

 

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Smith buys 100 shares of stock ABC at the same time Brown buys 100 shares of stock XYZ. Both stocks are bought for 10 per share. Smith receives a dividend of .80 per share, payable at the end of each year, for 10 years, at which time (just after receiving the 10th dividend) he sells his stock for 2 per share. Smith in- vests his dividends at annual rate 6%, and invests the proceeds of the sale of his stock at the same rate. Brown receives no divi- dends for the first 10 years, but starts receiving annual dividends of .40 per share at the end of 11 years. Brown also invests his dividends in an account earning 6%. If Brown sells his shares n years after purchase, what should be the sale price per share in order that his accumulated investment matches that of Smith, for each of n =15, 20 and 25? Smith buys 100 shares of stock ABC at the same time Brown buys 100 shares of stock XYZ. Both stocks are bought for 10 per share. Smith receives a dividend of .80 per share, payable at the end of each year, for 10 years, at which time (just after receiving the 10th dividend) he sells his stock for 2 per share. Smith in- vests his dividends at annual rate 6%, and invests the proceeds of the sale of his stock at the same rate. Brown receives no divi- dends for the first 10 years, but starts receiving annual dividends of .40 per share at the end of 11 years. Brown also invests his dividends in an account earning 6%. If Brown sells his shares n years after purchase, what should be the sale price per share in order that his accumulated investment matches that of Smith, for each of n =15, 20 and 25?

Answer rating: 100% (QA)

Answer Particulars SMITH BROWN Share purchase price 1000 1000 No of shares 100 100 Dividends per sha... View the full answer