1. You own 1,000 shares of stock in Avondale Corporation. You will receive a $0.80 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $35 per share. The required return on Avondale stock is 16 percent. You only want $200 total in dividends in year one and accomplish this by using homemade dividends. What will your total dividend amount be in year two?

$17,900

$20,764

$35,696

$41,402

$43,878

2. George bought an investment one year ago and just calculated his return on investment. He found that his purchasing power has increased by 10% as a result of his investment. If the inflation over the period was 3%, his _______________.

A. nominal return on investment is more than 10%

B. nominal return on investment is 7%

C. real return on investment is less than 10%

D. real return on investment is equal to 7%