What Is a DRIP as It Applies to Stocks? Suppose

question 102

Essay

What is a DRIP as it applies to stocks? Suppose you own 5,000 shares of Rough Rider Disposal Inc. and the firm has a DRIP program. Rough Rider pays dividends at the rate of $1.50 per share per year and has a current price of $57 per share. How many additional shares of stock can you receive if you elect to receive your dividends via the DRIP option? Why is this an advantage over purchasing the stock on the open market?

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Definitions:

Yield Management

A pricing strategy used in industries with fixed capacities, such as hotels and airlines, to maximize revenue through the manipulation of prices based on demand.

Variable Costs

Costs that vary directly with the level of business activity.

Fixed Costs

Costs that do not change in total amount with changes in the volume of production, such as rent, salaries, and insurance expenses.

Complex Models

Analytical or simulation models that incorporate a multitude of variables and relationships to represent or predict intricate systems or phenomena.