Question
Assume that you own 3,000 shares of stock in a company. You will receive $2 per share dividend in one year. In two years, the
Assume that you own 3,000 shares of stock in a company. You will receive $2 per share dividend in one year. In two years, the firm will pay a liquidating dividend of $50 per share. The required return on the companys stock is 16 percent. The current stock price is $38.88 per share and the stock price in year one is $43.10 per share. Ignore taxes, transaction costs, and other imperfections. Assume that you can buy or sell a fraction of a share. If you would rather have equal dividend on each of the next two years, how can you accomplish this by creating homemade dividends? A) Sell 1,714.58 shares in year one B) Buy 1,714.58 shares in year one C) Sell 1,546.67 shares in year one D) Buy 1,546.67 shares in year one
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