Danroy Inc has announced a $5 dividend. If Danroy's last price while trading cum-dividend is $65, what should its first ex-dividend price be (assuming perfect capital markets)?
A)$75
B)$60
C)$65
D)$70

Question

Quizplus · Accepted Answer

According to the dividend discount model, the ex-dividend price should be equal to the cum-dividend price minus the dividend amount. Therefore, the ex-dividend price should be $60 ($65 - $5).

Danroy Inc Has Announced a $5 Dividend