2.99 See Answer

Question: In Problem 10, suppose you want only $


In Problem 10, suppose you want only $1,500 total in dividends the first year. What will your homemade dividend be in two years?

Problem 10:
You own 1,000 shares of stock in Avondale Corporation. You will receive a $3.45 per share dividend in one year. In two years, the company will pay a liquidating dividend of $62 per share. The required return on the company’s stock is 15 percent. What is the current share price of your stock (ignoring taxes)? If you would rather have equal dividends in each of the next two years, show how you can accomplish this by creating homemade dividends. Hint: Dividends will be in the form of an annuity.


2.99

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