Marcus owns 500 shares of Pharmacon Inc. The firm has a quarterly dividend policy of $0.50 per share or the option to reinvest the cash dividends into additional shares of company stock
If the stock is selling for $128.00 per share ex-dividend, how many shares of stock will Marcus receive in the next dividend period if he chooses the dividend reinvestment plan?
A) 0.78 shares
B) 1.25 shares
C) 1.95 shares
D) 16.21 shares
Answer: C
Explanation: C) Cash value of the dividends = the per share dividend × the number of shares owned = $0.50 × 500 shares = $250.00. At $128 per share Marcus can purchase $250/$128 = 1.95 shares.
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