Free Republic
Browse · Search
News/Activism
Topics · Post Article

To: spunkets; drtom
Here's how attractive it would be to investors if we assume a constant 3% dividend rate and 3% appreciation in bond price every year:

Year 1: 100.00 x .03 = $3.00 dividend
Year 2: 103.00 x .03 = $3.09 dividend
Year 3: 106.09 x .03 = $3.18 dividend
Year 4: 109.27 x .03 = $3.28 dividend
Year 5: 112.55 x .03 = $3.38 dividend
Sell at 112.55


$15.93 (dividends) + 12.55 (sell profit) = $28.48 profit

$28.48 profit/$100 investment = 28% ROI!
Annualized ROI = 5.7%!

Here's how it would be if we assumed the same dividend, but the bond dropped 3% every year:

Year 1: 100.00 x .03 = $3
Year 2: 97.00 x .03 = $2.91
Year 3: 91.26 x .03 = $2.74
Year 4: 88.52 x .03 = $2.66
Year 5: 85.87 x .03 = $2.58
Sell at 85.87


$13.89 (dividends) – 14.13 (sell loss) = $0.24 loss

$0.24 loss/$100 investment = -0.24% ROI
Annualized ROI = -0.048%


So you see, even with a 14% drop in price, the investor is still breaking even. That's the beauty of dividends. In the stock market, dividends behave slightly different, with dividends being a defined amount, not a defined percentage.
44 posted on 07/17/2004 10:00:58 PM PDT by Remember_Salamis (Freedom is Not Free)
[ Post Reply | Private Reply | To 41 | View Replies ]


To: Remember_Salamis

The money for those dividends comes out of the original payment and tax money. I'll be back later to finish reading the article. Night.


45 posted on 07/17/2004 10:46:31 PM PDT by spunkets
[ Post Reply | Private Reply | To 44 | View Replies ]

Free Republic
Browse · Search
News/Activism
Topics · Post Article


FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson