In the previous problem, suppose you want only $200 total in dividends the first year. What will

Question:

In the previous problem, suppose you want only $200 total in dividends the first year. What will your homemade dividend be in two years?

In the Previous Problem

You own 1,000 shares of stock in Avondale Corporation. You will receive a $1.95 per share dividend in one year. In two years, the company will pay a liquidating dividend of $65 per share. The required return on the 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.)

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...