Carl Patterson likes investing in stocks that pay dividends. Carl owns 95 shares
ID: 2739219 • Letter: C
Question
Carl Patterson likes investing in stocks that pay dividends. Carl owns 95 shares of a local utility company. The stock pays a regular annual dividend in the amount of $4.25 per share and the company has indicated that the dividend will stay the same for a long time. If Carl reinvests his dividends each year and the dividends earn a return of 4 percent each year, how much will Carl accumulate in 13 years? Use Exhibit 1-B. (Round time value factor to 3 decimal places and final answer to 2 decimal places.)
Future value annuity $Explanation / Answer
Dividend Amount = $4.25 * 95 shares = $403.75
Future Value of annuity or the accumulated amount = Dividend { [ ( 1+ r)^n ] - 1 } / r
= Dividend = $403.75 (calculated above ) , r = 4% , n = 13 years
Accumulated amount = $403.75 { [ ( 1+ 4%)^ 13 - 1 } / 4%
= $403.75 { 1.04^13 - 1 } / 0.04
= $403.75 * 16.6268
= $6713.08 which is the required future value annuity