You own 1,000 shares of stock in Avondale Corporation. You will receive a dividend of $2.60 per

Question:

You own 1,000 shares of stock in Avondale Corporation. You will receive a dividend of $2.60 per share in one year. In two years, Avondale will pay a liquidating dividend of $53 per share. The required return on Avondale stock is 14 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.

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...