Question 910108: My bank account pays an interest rate of 8% (I know, unbelievable). I'm considering buying a share of stock in ABC Corporation for $110. After 1, 2, and 3 years, it will pay a dividend of $5. i expect to sell the stock after 3 years for $120.
Is this a good investment? I think the bank will pay more due to compounded interest, but I'm not entirely sure how to calculate the stock with the dividend (the dividend comes out, but does not get reinvested, correct?)
Thank you for your help!
Asked and answered with a sentence, but I need help with the calculations. Is there a tutor for hire currently online who can walk me through future value?
(1+r) * 100 after 1 year
(1+r)*(1+r) * 100 = (1 + r^2) * 100 after 2 years
etc.
I have the formula (above), but don't really know what I'm doing. How can I SHOW that the bank will be paying more interest?
I have $4.14 in my PayPal account if you can help me with a complete answer (sorry, I know it's not much)
Answer by JulietG(1812)   (Show Source):
You can put this solution on YOUR website! Your investment, with the bank
$110 * 1.08 = $118.80 after the first year
$118.80 * 1.08 = $128.30 after the second year
$128.30 * 1.08 = $138.57 after the third year
That's a profit of $28.57
Your investment, with ABC
$110 + $5 dividend the first year + $5 dividend the second year + $5 dividend the third year. Also, you anticipate selling the stock for a $10 profit.
$5 + $5 + $5 + $10 = $25
The better choice is with the bank.
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