Your company has announced a dividend of $2.50 per share. You and the rest of the marginal investors are in the 35% tax bracket. What should happen to the stock price?

Question

Quizplus · Accepted Answer

When a company announces a dividend, the stock price usually decreases by the amount of the dividend on the ex-dividend date. In this case, the dividend is $2.50 per share, so the stock price should decrease by $2.50 * 35% = $0.875. Therefore, the price of the stock should decrease by $2.50 - $0.875 = $1.625 immediately after the ex-dividend date.

Your Company Has Announced a Dividend of $2