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You own 100 shares of stock. It will pay (per share) $10 dividend in year 1, $25 dividend in years 2-9, and $175 liquidating dividend in year 10. The required return on the stock is 10%. a) What is the current stock price? b) You want the same amount of dividend in each of the 10 years and accomplish this by creating homemade dividends. Assume that you can buy/sell fractional shares. i. How many shares do you sell/buy at the end of year 1? ii. How many shares do you sell/buy at the end of year 2? iii. How many shares do you own at the beginning of year 10?

You own 100 shares of stock. It will pay (per share) $10 dividend in year 1, $25 dividend in years 2-9, and $175 liquidating dividend in year 10. The required return on the stock is 10%. a) What is the current stock price? b) You want the same amount of dividend in each of the 10 years and accomplish this by creating homemade dividends. Assume that you can buy/sell fractional shares. i. How many shares do you sell/buy at the end of year 1? ii. How many shares do you sell/buy at the end of year 2? iii. How many shares do you own at the beginning of year 10?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 3P
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You own 100 shares of stock. It will pay (per share) $10 dividend in year 1, $25 dividend in years 2-9, and $175 liquidating dividend in year 10. The required return on the stock is 10%. a) What is the current stock price? b) You want the same amount of dividend in each of the 10 years and accomplish this by creating homemade dividends. Assume that you can buy/sell fractional shares. i. How many shares do you sell/buy at the end of year 1? ii. How many shares do you sell/buy at the end of year 2? iii. How many shares do you own at the beginning of year 10?
Transcribed Image Text:You own 100 shares of stock. It will pay (per share) $10 dividend in year 1, $25 dividend in years 2-9, and $175 liquidating dividend in year 10. The required return on the stock is 10%. a) What is the current stock price? b) You want the same amount of dividend in each of the 10 years and accomplish this by creating homemade dividends. Assume that you can buy/sell fractional shares. i. How many shares do you sell/buy at the end of year 1? ii. How many shares do you sell/buy at the end of year 2? iii. How many shares do you own at the beginning of year 10?
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