Dividend Yield and Price-Earnings Ratio

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May 10, 2014 at 8:23 pm #168261
Oscar
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Dividend Yield= Dividend per share /Ex-div Price per share

P/E Ratio= Ex-div Price per share /Earnings per share

Can you explain why Ex-div share price is used instead of Cum-div share price in calculating the 2 ratios above?
May 11, 2014 at 12:27 pm #168325
John Moffat
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In practice it isn’t – it is whatever the share price happens to be whether ex-div or cum-div.
In the exam however we always use ex-div prices (which is clearly more sensible – if a dividend is due soon then the share price will be ‘artificially’ inflated).
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