Enron has been trading with a stock price of $51, and today it announced a dividend of $1. Investor A holds 1,000 shares of Enron. Assume perfect capital markets.

Describe the value and composition of the portfolio of investor A after the dividend is paid. Make sure to specify the value of her cash holdings, the value of her stock holdings and the total of her value. b. Now suppose investor A had an increased need for cash. He would have preferred a $4 dividend, instead of the $1 dividend that was paid after the $1 dividend is paid.

How can she replicate the payoffs she would have received had the dividend been $4 per share instead of $1 per share?

Answer rating: 100% (QA)

After the dividend is paid investor A will receive a cash payment of 1000 1 dividend per sh... View the full answer