How much must price of a stock fall on the ex dividend date

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Reference no: EM131245531

Under what conditions might dividend policy affect the value of the firm?

According to federal tax law, corporations need not pay taxes on 80% of dividends received from shares held in other corporations.

In other words, only 20% of the dividends received by a corporate holder are taxable.

Given this fact, how much must the price of a stock fall on the ex-dividend date in order to prevent a corporate holder from making arbitrage profits?

Assume that the capital gains rate equals the corporate tax rate, i, = .5.

Reference no: EM131245531

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