Series 7 practice questionmediumEquity Securities — Common Stock — Ex-Dividend Scenario
ABC stock closes at $50 per share and pays a $1 quarterly dividend. The stock goes ex-dividend the next morning. At what price would you expect the stock to open, all else being equal?
- A$50.00
- B$49.50
- C$51.00
- D$49.00✓ Correct answer
Explanation
Why D — $49.00
On the ex-dividend date, the stock price is typically reduced by the amount of the dividend. Since the $1 dividend is no longer attached to the stock, buyers on or after the ex-date will not receive it. Therefore, the stock would be expected to open at $50 - $1 = $49, all else being equal. This adjustment ensures that new buyers are not paying for a benefit they will not receive.
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