1)Bill, Jim and Shelly are all looking to buy the same stock that pays dividends. Bill plans on holding the stock for one year. Jim plans on holding the stock for three years. Shelly plans on holding...

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1)Bill, Jim and Shelly are all looking to buy the same stock that pays dividends. Bill plans on holding the stock for one year. Jim plans on holding the stock for three years. Shelly plans on holding the stock until she retires in 10 years. Which one of the following statements is correct?


1. Bill will be willing to pay the most for the stock because he will get his money back in one year when he sells.
2. Jim should be willing to pay three times as much for the stock as Bill because his expected holding period is three times as long as Bill's.
3. Shelly should be willing to pay the most for the stock because she will hold it the longest and hence she will get the most dividends.
4. All three should be willing to pay the same amount for the stock regardless of their holding period.


2) Explain your answer using concepts and financial theory we studied during the class.


3) Reflection – the students also should include a paragraphin the initial responsein their own words reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace.

Answered Same DayFeb 28, 2021

Answer To: 1)Bill, Jim and Shelly are all looking to buy the same stock that pays dividends. Bill plans on...

Nitish Lath answered on Feb 28 2021
125 Votes
Solution 1:
In the given case Bill, Jim and Shelly re willing to buy the stock this is paying divid
ends. Further Bill is planning to hold the stock for one year and Jim wants to hold the stock for the three years. On the other hand Shelly wants to hold the stock till she retires in 10 years. Thus in the given condition the correct option is option 4 because the entire three person are willing to pay the same amount for the stock irrespective of their holding period. This can be justified as the amount to buy the stock remains same for all the investors regardless of the period of holding.
Solution 2:
In order to determine the maximum price...
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