Tammy Welsh has two investment options to choose from. The stocks of both ABC Inc. and XYZ Corp. are currently trading at $200. ABC Inc. is paying a dividend of $10, and is expected to trade at $215 in a year's time. XYZ Corp. is paying a higher dividend of $25. However, the price of XYZ's stock is only expected to go up to $203 a year from now. Experts are estimating inflation to be about 2% in a year's time.
A) In which stock should Tammy invest and why?
B) If the expected inflation rate was revised to 2.5%, would it alter Tammy's choice? Explain your answer.

Question

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The Answer of Tammy Welsh has two investment options to choose from. The stocks of both ABC Inc. and XYZ Corp. are currently trading at $200. ABC Inc. is paying a dividend of $10, and is expected to trade at $215 in a year's time. XYZ Corp. is paying a higher dividend of $25. However, the price of XYZ's stock is only expected to go up to $203 a year from now. Experts are estimating inflation to be about 2% in a year's time.
A) In which stock should Tammy invest and why?
B) If the expected inflation rate was revised to 2.5%, would it alter Tammy's choice? Explain your answer.

Tammy Welsh Has Two Investment Options to Choose From