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Assume the stockholders of EX stock are in the 28 percent tax bracket. The closing price of the...

Question:

Assume the stockholders of EX stock are in the 28 percent tax bracket. The closing price of the stock today was $67.18 a share. The firm pays a quarterly dividend of $1.65 per share. What is the expected opening price of the stock tomorrow if tomorrow is an ex-dividend date?

A. $66.72

B. $65.53

C. $67.18

D. $67.61

E. $65.99

Ex-Dividend Date:

The ex-dividend date is a critical date concerning the entitlement to the next announced dividend from the stock. Prior to the ex-dividend, the buyer is entitled to the dividend. After the date, the seller is entitled to the dividend.

Answer and Explanation:

The answer is E.

If market is efficient, then the price of the stock will fall by an amount that is equal to the after-tax dividend at the ex-dividend date, thus the ex-dividend price will be:

  • ex-dividend price = 67.18 - 1.65 *(1 - 28%)
  • ex-dividend price = 65.992

Learn more about this topic:

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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
4.4K

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