Suppose you own 1000 shares of ABC Ltd. and will receive a dividend of $2 per share in one year. In two years, the company will pay a liquidating dividend of $55 per share. The required return on the company’s stock is 10%.
(i) What is the current price of your stock?
(ii) What is the price of your stock in one year (after first dividend payment)?
(iii) Suppose you want only $1000 total in dividends the first year. What will your homemade dividend be in two years?
(iv) If you would like to have equal dividends in each of the next two years. How you can accomplish this by creating homemade dividend?
