You own 1,000 shares of stock in Avondale Corporation. You will receive a $0.80 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $35 per share. The required return on Avondale stock is 16 percent. You only want $200 total in dividends in year one and accomplish this by using homemade dividends. What will your total dividend amount be in year two?

Question

Quizplus · Accepted Answer

Dividends received in one year = 1,000 F1F1F1S1F1F1F10 $0.80 = $800Price of stock in one year = $35/1.16 = $30.1724Number of shares purchased = ($800 - $200)/$30.1724 = 19.8857 sharesDividend in year two = $35 F1F1F1S1F1F1F10 (1,000 + 19.8857) = $35,696

You Own 1,000 Shares of Stock in Avondale Corporation