A dividend reinvestment plan enables stockholders to ________.
A) reinvest the dividends in money market instruments which are risk free
B) reinvest all dividends in the firm with no accompanying increase in equity
C) acquire additional dividends through redemption of stock
D) acquire shares at little or no transaction costs

Question

Quizplus · Accepted Answer

A dividend reinvestment plan allows stockholders to reinvest their dividends in the company's stock without incurring transaction costs. This enables them to acquire additional shares at little or no cost, thereby increasing their equity position in the company. Options A and B are incorrect because a dividend reinvestment plan does not involve money market instruments and does result in an increase in equity. Option C is incorrect because it does not accurately describe a dividend reinvestment plan.

A Dividend Reinvestment Plan Enables Stockholders to ________