suggests that Wally seriously consider putting some of his money into income shares to capture the high dividend yields that are available . After all , as Al says , ― the bottom line is not so much where the payoff comes from as how much it amounts to !‖ They then talk about a highyield public utility stock , Hydro-Electric Light and Power . Al digs up some forecast information about Hydro-Electric and presents it to Wally for his consideration : The stock currently trades at $ 60 per share . Al thinks that within five years it should be trading at $ 75 to $ 80 a share . Wally realizes that to buy the Hydro-Electric stock , he will have to sell his holdings of CapCo Industries — a highly regarded growth stock that Wally is disenchanted with because of recent substandard performance . Questions
a . How would you describe Wally ’ s present investment program ? How do you think it fits him and his investment objectives ? b . Consider the Hydro-Electric stock . 1 . Determine the amount of annual dividends Hydro-Electric can be expected to pay over the years 2016 to 2020 .
2 . Compute the total dollar return that Wally will make from Hydro-Electric if he invests $ 6,000 in the stock and all the dividend and price expectations are realized .
3 . If Wally participates in the company ’ s dividend reinvestment plan , how many shares of stock will he have by the end of 2020 ? What will they be worth if the stock trades at $ 80 on December 31 , 2020 ? Assume that the stock can be purchased through the dividend reinvestment plan at a net price of $ 50 a share in 2016 , $ 55 in 2017 , $ 60 in 2018 , $ 65 in 2019 , and $ 70 in 2020 . Use fractional shares , to 2 decimals , in your computations . Also , assume that , as in part b , Wally starts with 100 shares of stock and all dividend expectations are realized . c . Would Wally be going to a different investment strategy if he decided to buy shares in Hydro-Electric ? If the switch is made , how would you describe his new investment program ? What do you think of this new approach ? Is it likely to lead to more trading on Wally ’ s behalf ? If so , can you reconcile that with the limited amount of time he has to devote to his portfolio ?