Question

Advantages of a dividend reinvestment plan include:

A) Stock sold at a discount.
B) Guaranteed rate of return.
C) Tax advantages.
D) Convertible option.
E) Repayment of the principal.

Answer 1

The advantages of a dividend reinvestment plan include tax advantages, discounted stock prices, and convertible options.

Step-by-step explanation:

The advantages of a dividend reinvestment plan include:

1. Tax advantages: A dividend reinvestment plan allows investors to receive dividends in the form of additional shares instead of cash. By reinvesting the dividends, investors can potentially defer taxes on the dividends until they sell the shares.
2. Stock sold at a discount: Some dividend reinvestment plans offer discounted stock prices, allowing investors to purchase additional shares at a lower cost.
3. Convertible option: Some dividend reinvestment plans offer the option to convert the dividends into additional shares or receive cash.