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A sum of $20000 is invested in equity shares of XYZ CORPORATION for a period of 10 years.If the market value of this investment became $51875 after 10 years and the interest is reckoned continuously @10 percent per year, show that the investment become profitable if it gives a shareholder a dividend yield of 3% per year for 10 years. Ans: Dividend of 3% of $20000=$600\large PV_{10} \of \ the \ dividend \ income \ stream =\int_{0}^{10} 600 e^{-rt}dt, \ r=0.1)
![=\frac{600}{0.1}\left[-e^{-0.1t}\right]_{0}^{10}](http://latex.codecogs.com/png.latex?=\frac{600}{0.1}\left[-e^{-0.1t}\right]_{0}^{10})
=3792.72335(B)Present value of market value of $51875 after 10 years =
Thus, the total present value calculated in (A) and (B)[22876.47] is greater than the initial investment amount $20000. So we can say investment of $20000 in XYZ CORPORATION is profitable.Are my calculations right?Let me know from this forum.
