If Patrick has an original investment of $3,000 in stock that pays annual divide

Question

If Patrick has an original investment of $3,000 in stock that pays annual dividends equal to 2% of the investment, what would the value of the investment be at the following increments assuming he reinvests the after-tax dividends each year? Assume his marginal ordinary rate is 15%

a.     3 years from now

b.     6 years from now

c.     10 years from now

If Patrick has an original investment of $3,000 in stock that pays annual dividends equal to 2% of the investment, what would the value of the investment be at the following increments assuming he reinvests the after-tax dividends each year? Assume his marginal ordinary rate is 15% 3 years from now 6 years from now 10 years from now

Explanation / Answer

After tax dividend % = 2%*(1-15%) = 1.7%

a. Value of investment in 3 years = 3000*(1+1.7%)^3 = 3155.62

b. Value of investment in 6 years = 3000*(1+1.7%)^6 = 3319.30

c. Value of investment in 10 years = 3000*(1+1.7%)^10 = 3550.84

Hope this helped ! Let me know in case of any queries.

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