You own stock in a Toronto ﬁrm that has 1.25 million shares outstanding. The current stock price is $13.50 per share. If the company issues a 10% stock dividend, what would you expect the stock
Price to be after the dividend is paid?

Question

Quizplus · Accepted Answer

The correct answer is A because the stock price will decrease after the stock dividend is paid. The total value of the company remains the same, but the number of shares outstanding increases. This means that each share will be worth less. The new stock price can be calculated as follows:New stock price = Old stock price / (1 + Stock dividend percentage)New stock price = $13.50 / (1 + 0.10)New stock price = $12.27

You Own Stock in a Toronto ﬁRm That Has 1