Module 12 Example 12.11 A French invester who is taxed at 35% on income ,have just purchased 500 shares in a small education company ex-dividends. Dividends are paid annually and a next dividend is due in 1 month time .last dividend was 8 per share and expecte rise by 4 %pa. Calculate the price paid by the invester ,expected yield is 12%. Sol:- 500×8(1-0.35)(1.04+v1.04^2+v^2*1.04^3.................) Shouldn't this be the present value in one months time in the book it is given. 500×8(1-0.35)(1.04^2+v1.04^3+v^2*1.04^4.................) Please can anyone explain y .... THANK YOU
Because it is ex-dividend, the investor would not receive the dividend due in one months time. The PV that is given is after this dividend is paid. It's basically the PV of what that investor is likely to receive. What is due in one months time is 8 * 1.04 - which he wouldnt receive. The next one is 1.04^2 due one yr after the next dividend, which he would get and so on...
yes, If it is ex-dividend, the investor does not receive the dividend immediately paid immediately after he buys the share. You have to be careful with the date of buying the share, payment of next dividend!
