Personal Finance 1st Edition by Jack R. Kapoor

Exercise 29

Compounding Dividend Amounts. Carl Patterson likes investing in stocks that pay dividends. Carl owns 25 shares of a local utility company. The stock pays a regular annual dividend in the amount of $3 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 6 percent each year, how much will Carl accumulate in 15 years? (To solve this problem, you may want to use Exhibit 1-B in the appendix that follows Chapter 1.)

Exhibit 1-B Future value (compounded sum) of $1 paid in at the end of each period for a given number of time periods (an annuity)

Step 1 of 2

Calculation of sum accumulated by CP:

Dividends Re-invested are the product of number of shares and the dividend per share.