JEN Corp. is expected to pay a dividend of $2.00 per year indefinitely. If the appropriate rate of return on this stock is 12 percent per year, and the stock consistently goes ex-dividend 25 days before the dividend payment date, what will be the expected maximum price in light of the dividend payment logistics?

JEN Corp. is expected to pay a dividend of $2.00 per year indefinitely. If the appropriate rate of return on this stock is 12 percent per year, and the stock consistently goes ex-dividend 25 days before the dividend payment date, what will be the expected maximum price in light of the dividend payment logistics?

 

So the maximum stock price, which will occur right before the stock goes ex-dividend, will be: P0 = {$2.00/[(1 + 0.000311) 25th power]} + {($2.00/0.12) × (1/[(1 + 0.000311) 25th power])} = $18.5245

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