Mount Reindeer Pure Spring Water Inc.is considered a liquid company because of its generous dividend policy.Prior to the firm's ex-dividend date of May 15th,the stock is selling for a price of $23.18 per share.If you purchase the stock prior to May 15th,you will receive a dividend of $1.15.If you waited until May 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 price is expected to decrease by the amount of the dividend. Therefore, the new price of the stock is:

$23.18 - $1.15 = $22.03

Thus, if you waited until May 16th to buy the stock, the expected price would be $22.03.