The ex-dividend date: ABC Co. has announced it will pay its regular cash dividend of $0.45 per share. If dividends are taxed at 15 percent, about how much do you expect the price of ABC to drop on the ex-dividend day?

Question

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On the ex-dividend day, the stock price of ABC Co. is expected to drop by the amount of the dividend per share, which is $0.45. However, since dividends are taxed at 15 percent, the after-tax dividend will be $0.45 x (1-0.15) = $0.3825. Therefore, we can expect the price of ABC to drop by approximately $0.38 (rounded to the nearest cent).

The Ex-Dividend Date: ABC Co