You own 1,100 shares of stock in Avondale Corporation. You will receive a $2.60 per share...

Question:

You own 1,100 shares of stock in Avondale Corporation. You will receive a $2.60 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $48 per share. The required return on Avondale stock is 20 percent. Suppose you want only $800 total in dividends the first year. What will your homemade dividend be in two years? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)

Homemade dividends:

A homemade dividend is the amount of dividend per share that individual investors generate from the sale of a percentage of shares owned by them. It differs from traditional dividend usually distributed by companies as it is not officially paid by companies but rather created by investors themselves. It is an opportunity to make dividend income if you prefer dividends but have invested in a non dividend paying company.

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Homemade Dividends: Definition & Examples

from Finance 101: Principles of Finance

Chapter 16 / Lesson 2
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