The ex-dividend date: ABC Co. stock is currently trading at $38.15 per share. The company pays a regular cash dividend of $0.80 every quarter. Tomorrow is ex-dividend day for the upcoming regular dividend. The tax rate on dividends is 15 percent. Assuming there is no new information released about the company, how much do you expect the company's stock to trade for tomorrow?

Question

Quizplus · Accepted Answer

The stock price is expected to drop by the amount of the dividend on the ex-dividend date. The dividend is $0.80, so the expected price is $38.15 - $0.80 = $37.35. However, considering the tax effect, the after-tax dividend is $0.80 * (1 - 0.15) = $0.68. Therefore, the expected price is $38.15 - $0.68 = $37.47.

The Ex-Dividend Date: ABC Co