7.

a. Suppose that Liquid Force's stock price consistently falls by an amount equal to one-half the dividend it pays on the payment date. Ignoring taxes, can you think of an investment strategy to take advantage of this information?

b. If you and many others pursued this strategy, predict what would happen to Liquid Force's stock price on the dividend payment date.

c. Suppose that Liquid Force's stock price consistently falls by an amount equal to twice the dividend payment on the payment date. Ignoring taxes, can you think of an investment strategy to take advantage of this information?

d. If you and many others pursued this strategy, predict what would happen to Liquid Force's stock price on the dividend payment date.

e. In an efficient market, ignoring taxes and transaction costs, how do you think stock prices will change on dividend payment dates?

f. Given that investors receive returns from common stock in the form of dividends and capital appreciation, do you think that increasing dividends will benefit investors in efficient markets and in the absence of taxes?