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SIE: Equity Securities
SIE practice questionhardDividends

Which of the following occurs on the ex-dividend date for a common stock?

  1. AThe stock begins trading without the value of the next dividend✓ Correct answer
  2. BThe company pays the dividend to all shareholders
  3. CShareholders must sell shares before this date to receive the next dividend
  4. DOnly preferred shareholders receive the dividend
Explanation

Why AThe stock begins trading without the value of the next dividend

On the ex-dividend date, new buyers are not entitled to the declared dividend; the price usually drops by the dividend amount. Payment typically occurs later, and selling before the ex-date would mean not receiving the dividend.

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