In 2002, Vikrant had 3000 shares of company X, which gave a dividend

Question

In 2002, Vikrant had 3000 shares of company X, which gave a dividend of 6%. He sells them on 1 January2003 at $106 each from the proceeds of which he pays a broker the fee of 2%. With the remaining money, he purchases some shares of company Y of face value $100 at a price of $105 each. Company Y pays a dividend of 7%. Calculate the difference in his earnings between 2002 and 2003.

(A) $4236
(B) $4216
(C) $4200
(D) $2776
(E) $2770

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(A) $4236
(B) $4216
(C) $4200
(D) $2776
(E) $2770

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ThatDudeKnows · Answer

This question has been reposted a few times. I think the reason nobody has answered it is that it's missing important information. The value of a dividend depends on the current stock price and we are never told the current stock price at the time of either dividend (note that you are NOT expected to know how a dividend is calculated, so GMAC wouldn't give this question without providing the definition). I THINK the assumption is that the stock price is at 100 each time a dividend is paid (even though that doesn't make sense given the other information and assumptions in the question, but oh well). If so, here's the solution.

2002 dividend: 3000 shares of X yields a dividend of 3000*6 = 18000.
He sells 3000 shares of X for 106 each. That's 3000*106 = 300000+18000 = 318000.
He pays a 2% broker fee. That's 3180+3180 = 6360.
So the net proceeds from the sale are 318000-6360 = 311640.
He buys shares shares of Y for 105 each, so he can buy 311640/105 = 2968 shares of Y. 
2003 dividend: 2968*7 = 20776

Difference: 20776-18000 = 2776

Answer choice D.

Raman109 · Answer

Here is the stepwise calculation:
 
  Total Selling Amount for Shares of Company X :

Total = 3000 shares * $106 per share = $318,000   
  Amount Paid to Broker :

Broker Fee = $318,000 * 2% = $6,360   
  Remaining Amount After Paying the Broker :

Remaining = $318,000 - $6,360 = $311,640   
  Number of Shares of Company Y That He Can Purchase :

Number of shares = $311,640 // $105 per share ≈ 2968 shares   
  Dividend Earnings from Company X in 2002 :

Dividend Earnings X = 3000 shares * $100 face value * 6% = $18,000   
  Dividend Earnings from Company Y in 2003 :

Dividend Earnings Y = 2968 shares * $100 face value * 7% ≈ $20,776   
  Difference in Earnings :

Difference = $20,776 (2003 earnings) - $18,000 (2002 earnings) ≈ $2,776    
Therefore, the difference in Vikrant's earnings between 2002 and 2003 is approximately $2,776, which corresponds to option (D) $2776.

In 2002, Vikrant had 3000 shares of company X, which gave a dividend

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In 2002, Vikrant had 3000 shares of company X, which gave a dividend

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