Cost of equity.

Hi,

The bank holiday weekend was fun thanks. It was even sunny for a change which always helps! Hope you manged to get out and didn’t spend too long going through your books!

The key to the question is when it tells you about the dividend and not the share price.

If it says “the dividend is about to be paid” then the price given must be cum-div as if the dividend hasn’t yet been paid then the share price will not have adjusted for any dividend payment, so the price is inclusive of the dividend. To get the ex-div price we therefore need to adjust the share price, which is what we had to do in the question you mention above.

If it says “the dividend has just been paid” then the price must be ex-div as the dividend has been paid and the share price will have adjusted for this dividend payment and gone ex-div. We therefor don’t need to make any adjustment to the share price given in the question.

Hope this helps.

Thanks

Chris

Well work hard between now and the 9th September (due date of my second baby!) and hope it all goes well in the final exam. You know where we are if you need any help.