Cum-dividend and Ex-dividend Price

When a company is about to pay a dividend, the market price of its share reflects whether the buyer will or will not receive that forthcoming dividend. This gives rise to two quoted prices around dividend time.

Cum-dividend price ("cum" = Latin for "with"). This is the price at which a share is sold with the right to receive the dividend that is about to be paid. A buyer at the cum-dividend price will collect the upcoming dividend, so the price is higher — it effectively includes the dividend that is on its way.

Ex-dividend price ("ex" = "without"). This is the price at which a share is sold without the right to the forthcoming dividend — that dividend goes to the seller instead. A buyer at the ex-dividend price does not collect the upcoming dividend, so the price is lower by exactly the amount of that dividend.

The two prices differ by precisely the dividend about to be paid:

where, as always, the dividend is computed on the face value (§4): $\text{Dividend} = \dfrac{r}{100}\times FV$. …