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You own, 1000 shares of stock in Avondale Corporation. You will receive a $1.95 per share...

You own, 1000 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.)

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Homework Answers

Answer #1

Value of Share =

=

= $ 50.84 Or 50.85

Total Dividend = 1.95 + 65 = $ 33.475

Value of Share =

=

= $ 54.42

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