Question

P17-20 Western Railroad has a dividend reinvestment plan for shareholders. From 2010 to​ 2014, the company had the​ year-end share prices and the​ end-of-year annual dividends in the popup​ window: If you started with 1, 000 shares of stock at ​$22.00 per share and participated fully in the​ DRIP, how many shares of stock would you have at the end of​ 2014? What would be the total value of your​ shares?

Year   Share Price after Dividend Dividend per Share

2010 ​$28.45 ​$2.50

2011 $30.50 ​ $2.75

2012 ​$35.55 ​$3.15

2013 ​$40.95 ​$3.50

2014 ​$42.30 $4.30

How many shares of stock would you have at the end of​ 2014?

Answer 1

Under dividend reinvestment plan, new shares are purchased from dividend

Year	Beginning Shares	Dividend Received	Price	Shares Purchased	Closing Shares
2010	1,000	2,500	28.45	87.87	1,087.87
2011	1,087.87	2,991.6425	30.50	98.09	1,185.96
2012	1,185.96	3,735.774	35.55	105.09	1,291.05
2013	1,291.05	4,518.675	40.95	110.35	1,401.4
2014	1,401.4	6,026.02	42.30	142.46	1,543.86

Hence, stock at the end of​ 2014 = 1,543.86

Value of Shares = 1,543.86*42.30 = $65,305.28