Question

Wotan owns 1,000 shares of a firm that has just announced an increase in its div- idend from $2.00 to $2.50 a share. the share price is currently $150. if wotan does not wish to spend the extra cash, what should he do to offset the dividend increase?

Answer 1

Ans : Wotan can reinvest the whole amount ( 1000 X 0.50 = 500 ) in the stock. If the ex-dividend price is $ (150- 2.50) = 147.50, this should involve the purchase of 500/ 147.50 , or about 3 shares of the firm.