Tammy Welsh Has Two Investment Options to Choose From

question 97

Essay

Tammy Welsh has two investment options to choose from. The stocks of both ABC Inc. and XYZ Corp. are currently trading at $200. ABC Inc. is paying a dividend of $10, and is expected to trade at $215 in a year's time. XYZ Corp. is paying a higher dividend of $25. However, the price of XYZ's stock is only expected to go up to $203 a year from now. Experts are estimating inflation to be about 2% in a year's time.
A) In which stock should Tammy invest and why?
B) If the expected inflation rate was revised to 2.5%, would it alter Tammy's choice? Explain your answer.

• A) In which stock should Tammy invest and why?
• B) If the expected inflation rate was revised to 2.5%, would it alter Tammy's choice? Explain your answer.

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Definitions:

Channel Conflict

Disputes or competition among different distribution channels of the same product, which can lead to reduced efficiency and profitability for a manufacturer.

Disagreements

Occurrences of conflicting opinions or views among individuals or groups.

Trade Discounts

A reduction in the listed price of goods or services offered by sellers to buyers in the business-to-business market or in bulk purchases.

Distribution Chain

A sequence of processes through which a product or service passes until it reaches the end consumer, including manufacturers, wholesalers, and retailers.