Would anyone be able to help me out please?
You buy 100 shares of XYZ at $40per share.XYZ pays an annual dividend of $2 and offers an automatic dividend reinvestment plan.Assume that the dividend will remain constant over the next 5 yrs and that the stock will increase 5% each yr.How much will will your XYZ investment be worth after 5yrs if you partake in the dividend reinvestment plan?Any help would be greatly appreciated.
I'd be happy to help you! To calculate how much your XYZ investment will be worth after 5 years, taking into account the dividend reinvestment plan and assuming the stock increases by 5% each year, you'll need to follow these steps:
Step 1: Calculate the dividend reinvestment for each year.
Since the dividend is constant at $2 per share, and you have 100 shares, the total dividend payout each year would be 100 shares * $2 per share = $200. Since it's an automatic dividend reinvestment plan, you can assume that you'll reinvest the entire dividend amount each year.
Step 2: Calculate the value of your shares at the end of each year, considering the 5% increase.
To calculate the value of your shares after each year, you'll need to multiply the number of shares by the stock price, which increases by 5% each year. Let's go through each year:
- Year 1: The stock price increases by 5%, so it becomes $40 * 1.05 = $42.
- Year 2: The stock price increases by 5% again, so it becomes $42 * 1.05 = $44.10.
- Year 3: The stock price increases by 5% again, so it becomes $44.10 * 1.05 = $46.31.
- Year 4: The stock price increases by 5% again, so it becomes $46.31 * 1.05 = $48.62.
- Year 5: The stock price increases by 5% again, so it becomes $48.62 * 1.05 = $51.05.
Step 3: Calculate the total value of your investment after 5 years.
To calculate the total value of your investment, you'll need to sum up the value of your shares at the end of each year (including the dividend reinvestment). Let's calculate it:
- Year 1: $42 * 100 shares = $4,200 (including the $200 dividend reinvestment).
- Year 2: $44.10 * 100 shares = $4,410 (including the $200 dividend reinvestment).
- Year 3: $46.31 * 100 shares = $4,631 (including the $200 dividend reinvestment).
- Year 4: $48.62 * 100 shares = $4,862 (including the $200 dividend reinvestment).
- Year 5: $51.05 * 100 shares = $5,105 (including the $200 dividend reinvestment).
So, after 5 years of participating in the dividend reinvestment plan, your XYZ investment will be worth $5,105.
I hope this helps! Let me know if you have any other questions.