1. 10.

Homemade dividends [LO 17.2] You own 1 000 shares in Avondale Company. You will receive a $3.15 per-share dividend in one year. In two years, the company will pay a liquidating dividend of $57 per share. The required return on the company’s shares is 15 per cent.

What is the current share price (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.