Pike's Peak Pure Spring Water Inc.is considered a liquid company because of its generous dividend policy.Prior to the firm's ex-dividend date of June 15th,the stock is selling for a price of $31.25 per share.If you purchase the stock prior to June 15th,you will receive a dividend of $1.60.If you waited until June 16th to buy the stock,and there was no other event to change the price of the stock,what would be the stock's expected price?

Question

Quizplus · Accepted Answer

On the ex-dividend date, the stock's price usually decreases by the amount of the dividend. Therefore, after June 15th, the stock's price is expected to be $31.25 - $1.60 = $29.65.