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?
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
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from Finance 101: Principles of FinanceChapter 16 / Lesson 1