Bill, Jim and Shelly Are All Looking to Buy the Same

question 20

Multiple Choice

Bill, Jim and Shelly are all looking to buy the same shares that pay dividends. Bill plans on holding the shares for one year. Jim plans on holding the shares for three years. Shelly plans on holding the shares until she retires in 10 years. Which one of the following statements is correct?

• A)Bill will be willing to pay the most for the shares because he will get his money back in one year when he sells.
• B)Jim should be willing to pay three times as much for the shares as Bill because his expected holding period is three times as long as Bill's.
• C)Shelly should be willing to pay the most for the shares because she will hold them the longest and hence she will get the most dividends.
• D)All three should be willing to pay the same amount for the shares regardless of their holding period.

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