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How can he make money by exploiting this arbitrage

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Reference no: EM132403233

Suppose there is a perfect capital market with no frictions or taxes. The current price of a stock is $10 per share. It is just about to go ex-dividend and a dividend of $1 will be paid. People owning the stock at close of trading today will receive a dividend of $1. If somebody buys the stock tomorrow they will not receive the dividend. Thomas is certain that the price tomorrow will be $9.25 which implies that there is an arbitrage opportunity. How can he make money by exploiting this arbitrage opportunity?

Reference no: EM132403233

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