ABC Corp. is expected to pay a dividend of $5.00 per year indefinitely. If the appropriate rate of return on this stock is 5 percent per year, and the stock consistently goes ex-dividend 45 days before the dividend payment date, what will be the expected minimum price in light of the dividend payment logistics?

Question

Quizplus · Accepted Answer

The correct answer is A because the expected minimum price of the stock is $99.40. This is because the stock will go ex-dividend 45 days before the dividend payment date, which means that the buyer of the stock will not receive the next dividend payment. Therefore, the price of the stock will drop by the amount of the dividend, which is $5.00. The expected minimum price of the stock is therefore $100.00 - $5.00 = $99.40.

ABC Corp Is Expected to Pay a Dividend of $5