You own 20 shares of Shane\'s Aircraft. You are told that you will receive a div

Question

You own 20 shares of Shane's Aircraft. You are told that you will receive a dividend of $0.50 per share in year 1 and a liquidating dividend of $13.80 per share in the following year. The required return is 20% and you can assume no taxes.

1) What is the price per share of the common stack of Shane's Aircraft?

a) $10.00

b) $12.00

c) $13.80

d) $13.30

2) Suppse that you would rather have equal dividends in each of the two years, what is the dividend amount that you will receive?

a) $8.50

b) $7.15

c) $6.55

d) $6.25

Explanation / Answer

1. a. $10

(0.5/1.2^1 + 13.8/1.2^2)

2. c: $6.55

(10 = x/1.2 + x/1.2^2);

x= 6.55

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