Final answer:
The student is seeking to adjust their shareholding to receive equal dividend payments in each year from ABC company, considering the announced dividend payment plans. Calculating the present value of each dividend will be necessary, after which determining the amount of shares to buy or sell to achieve the desired income stream.
Step-by-step explanation:
The student has been asked to determine the adjustment in the number of shares they must buy or sell each year to achieve a specific dividend income stream from ABC company, which has laid out its dividend payment plan over the next four years.
For part a), to achieve equal dividends each year, the investor needs to calculate the present value of the dividends and find out how much each dividend stream is worth in today's dollars. After calculating the present value of each year's dividend, the investor would then determine the average dividend per year to ensure an equal payment stream. This requires buying or selling shares accordingly to adjust the dividend income. For part b), as the student seeks a specific total dividend in year 2 and year 3, with equal amounts in years 1 and 4, they would perform a similar calculation to part a) but adjust the number of shares to meet the stated goals of $9,000 and $12,000 respectively. Again, this would involve calculating the present value and then the number of shares that need to be bought or sold to arrive at the desired annual dividend amounts.
The calculation involves understanding the return on investment that the stock provides through its dividends, which is a direct payment to shareholders representing a part of the company's profits, and adjusting the shareholding accordingly to meet the desired income stream.