The ex-dividend date: Harbourside Co. share is currently trading at $25.70 per share. The company pays a regular cash dividend of $0.40 every quarter. Tomorrow is ex-dividend day for the upcoming regular dividend. The tax rate on dividends is 15 per cent. Assuming there is no new information released about the company, how much do you expect the company's share to trade for tomorrow?

Question

Quizplus · Accepted Answer

The share price is expected to drop by the amount of the dividend on the ex-dividend date. The dividend is $0.40, so the expected price is $25.70 - $0.40 = $25.30. However, considering the tax on dividends, the effective drop is $0.40 * (1 - 0.15) = $0.34, so the expected price is $25.70 - $0.34 = $25.36.

The Ex-Dividend Date: Harbourside Co