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1. If a company makes a 3-for-1 stock split would the share price decrease by a factor of [tex] \frac{1}{4} [/tex]? In other words if we have a stock valued at $500, with a stock split would we have 4 stocks valed at $125?

2. A company whose stock price is cirrently [tex] S [/tex] pays out a dividend [tex] D [/tex], where [tex] 0\leq D\leq 1 [/tex]. What is the price of the stock just after the dividend date? Would it just be [tex] S - DS [/tex]?

3. A particular forward contract costs nothing to enter inato at time t and obligates the holder to buy the asset for an amount [tex] F [/tex] at expiry [tex] T [/tex]. The asset pays a dividend [tex] DS [/tex] at time [tex] t_{d} [/tex], where [tex] 0\leq D\leq 1 [/tex] and [tex] t\leq t_{d}\leq T [/tex]. Use an arbitrage argument to find the forward price [tex] F(t) [/tex]

Hint: Consider the point of view of the writer of the contract when the dividend is re-invested immediately in the assetWould [tex] F = S(t)e^{-r(T-t}? [/tex]

Thanks

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# Homework Help: Dividends and No Arbitrage

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