You have one share of Ford Motor Co. It is January 1, 2020, and the company recently issued a statement that it will pay a $2.00 per share dividend on December 31, 2020 and a $1.50 per share dividend on December 31, 2021. You do not want any dividends this year, but want as much dividend income as possible next year. You expect Ford stock to return 12% / year. Using homemade dividends, how much in total will you get in 2021?
2. Suppose Company X issued a 10-year bond issue with a semi-annual coupon of 4%. The issue becomes callable in two years and may be called each year thereafter, and the first call price is 104. Suppose you are sure that the bond will be called on the first call date in two years. The relevant market interest rate is 6.5% / year. How much would you be willing to pay today for this bond?
3. Company Z is proposing a rights offering. There are 200,000 shares outstanding trading at $25 each. There will be 10,000 new shares issued at a $22 subscription price. Suppose you do not want to buy additional shares of Company Z. Instead, you prefer to sell your right. What is your right worth (at a minimum) to another investor?
