Bill, Jim and Shelly are all looking to buy the same stock that pays dividends. Bill plans on holding the stock for one year. Jim plans on holding the stock for three years. Shelly plans on holding the stock until she retires in 10 years. Which one of the following statements is correct?
1. Bill will be willing to pay the most for the stock because he will get his money back in one year when he sells.
2. Jim should be willing to pay three times as much for the stock as Bill because his expected holding period is three times as long as Bill’s.
3. Shelly should be willing to pay the most for the stock because she will hold it the longest and hence she will get the most dividends.
4. All three should be willing to pay the same amount for the stock regardless of their holding period.
2) Explain your answer using concepts and financial theory we studied during the class.
3) Reflection – the students also should include a paragraph in the initial response in their own words reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace.