Twelve days ago,DOG,Inc.declared a dividend of $1.34 a share.The ex-dividend date is tomorrow.All else constant,which one of the following is the best estimate of DOG,Inc.'s opening stock price tomorrow?

Question

Quizplus · Accepted Answer

The ex-dividend date is the date on or after which a share of a stock trades without its dividend. This means that anyone who buys the stock on or after the ex-dividend date will not receive the dividend.

Therefore, since the dividend has already been declared and the ex-dividend date is tomorrow, investors know that they will not receive the dividend if they buy the stock tomorrow. As a result, the stock price should theoretically decrease by approximately the aftertax value of the dividend.

Hence, the best estimate of DOG, Inc.'s opening stock price tomorrow is today's closing price minus an amount approximately equal to the aftertax value of the dividend. Thus, the correct answer is B.

Twelve Days Ago,DOG,Inc