In a perfect capital market, when a dividend is paid, the share price drops by the amount of the dividend when the stock begins to trade ex-dividend.

Question

Quizplus · Accepted Answer

In a perfect capital market, the share price does drop by the amount of the dividend when the stock begins to trade ex-dividend. This is because investors expect to receive the dividend, so the stock becomes less valuable without it. However, in real-world markets, other factors can also influence the share price, so the drop may not exactly match the dividend amount.

In a Perfect Capital Market, When a Dividend Is Paid