Hey I am supposed to calculate the following problem:
The investor chooses to buy shares of 4,000 dollars for which a dividend of 30dollars is paid quarterly or to purchase government bonds for 60,000 dollars, which will increase by 10 years to 80,000$. Which of the alternatives offers a higher return, provided that neither the market price nor the dividend on the stock changes over 10 years?
If I want to compare it I have to calculate numers of quartely years, which is 40. But then I have written:
If it would be withouth interest rate yield from the shares would be:
$15\left ( 30*40 \right )=18000$ dollars.
Can someone please tell me, why is there 15?
Thank you so much.
Because the government bond is worth $60,000\$$, while a share is worth $4000\$$. If you want to compare them for an equal initial investment, you should buy $60,0000/4,000 = 15$ shares. Each one of them yields the dividends you mentioned.