Dividend Payment and the Binomial Method A dividend yield can be calculated by annualizing a known dividend payment D per year by setting

Dividend Payment and the Binomial Method A dividend yield δ can be calculated by annualizing a known dividend payment D per year by setting δ = D/S. For a binomial tree, the effects of paying either

a) a fixed amount D or

b) a proportional amount δS are different. Assume a dividend payment at time tD < T and a node of the tree at tν = tD. For a share value of S at tν−1 discuss the tree evolution at tν+1 with focus on recombination, comparing the two scenarios

a) and b).