Use the following information to answer the following question(s).
Your firm is planning to pay a 15% share dividend.The market price for the share has been $84.The table below presents the equity portion of your firm's balance sheet before the dividend.
Common share

-StudioNinety's board of directors announced a quarterly dividend of 25 cents.The ex-dividend date is November 3.On November 2, StudioNinety's share closed at $40.00 per share.What is the most likely opening price on November 3?
A)$40.25
B)$39.75
C)$41.00
D)$39.00

Question

Use the following information to answer the following question(s).
Your firm is planning to pay a 15% share dividend.The market price for the share has been $84.The table below presents the equity portion of your firm's balance sheet before the dividend.
Common share
 
-StudioNinety's board of directors announced a quarterly dividend of 25 cents.The ex-dividend date is November 3.On November 2, StudioNinety's share closed at $40.00 per share.What is the most likely opening price on November 3?
A)$40.25 
B)$39.75 
C)$41.00 
D)$39.00

Quizplus · Accepted Answer

When a stock is sold ex-dividend, it means that the buyer will not receive the next dividend payment. Therefore, the stock's price is expected to decrease by the amount of the dividend on the ex-dividend date. In this case, the dividend is 25 cents, so the most likely opening price on November 3 will be the previous day's closing price minus 25 cents, which is $40.00 - $0.25 = $39.75. Therefore, the best choice is B.

Use the Following Information to Answer the Following Question(s)