Homemade Dividends.
Response to the following problem:
You own 1000 shares in Christina Communications. You will receive a $3.50 per share dividend in one year. In two years, Christina will pay a liquidating dividend of $45 per share. The required return on Christina's shares is 15%. 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.)