CashOut,Inc.has a current share price of $50.If CashOut plans to pay a $1 dividend,then if we ignore the effect of taxes we would expect the price of CashOut shares to change by what amount on the ex dividend date?

Question

Quizplus · Accepted Answer

On the ex-dividend date, the share price will typically drop by the amount of the dividend being paid, all other things being equal. This is because investors who purchase shares on or after this date are not entitled to receive the upcoming dividend payment. Therefore, they will demand a lower price for the shares they are buying, which results in a drop in the share price. In this case, since CashOut is paying a $1 dividend, we would expect the share price to drop by $1 on the ex-dividend date.