Question 16.19 I am not getting the "rolled up dividend" part of scenario 2 . Can anyone explain how they have got those figures?
Hi The rolled up dividends are accumulating the dividend from the end of each time period to the end of the 3 years under consideration (at the 7% net expected return the investor might expect to earn on them). For example, dividend at end of year 1 is 49,000. If this earns 7% for 2 years, we get 49,000(1.07)(1.07) = 56,100. The 51,401 dividend at t=2 earns a single year at 7% to give 54,999. Hope this helps Lynn
