Suppose the price of a common stock closes at 49 on march, Ask an Expert

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Suppose the price of a common stock closes at $49 on March 17 after the announcement that an extraordinary dividend of $1.15 per share will be distributed on March 18 before trading starts.

(a) Based on this information, what price of the stock would you expect the stock to trade at on March 18 after the dividend has been distributed?

(b) Based on your answer to part (a), what is the return for an investor that buys the stock just before the closing on March 17 and sells it again immediately after trading starts on March 18? Explain your answer.

(c) Suppose the opening price for the stock on March 18 is $48.25. What does this imply for the efficient market hypothesis?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92305733

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