Consider three investors: a. Mr. Single invests for one year. b. Ms. Double invests for two years.

Question:

Consider three investors:

a. Mr. Single invests for one year.

b. Ms. Double invests for two years.

c. Mrs. Triple invests for three years.

Company Z’s earnings and dividends per share are expected to grow indefinitely by 5% a year, the next year A’s dividend is $10 and the market capitalization rate is 8%.

Assume each invests in company Z. Show that each expects to earn a rate of return of 8% per year.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...