Question

1. Suppose a company fully financed with equity has a market cap of $1 million. There are 10,000 shares outstanding. If it pays $50,000 in dividends what will be percentage change the market cap of the company after the dividends are paid? Report the answer without the % sign. Use the minus sign if your answer is negative.
2. Authorized Participants is a term that appears in the case of:
   1. Exchange Traded Fund
   2. Mutual Funds

Answer 1

We have given Market Cap of $10,00,000.

Number of shares = 10,000

Dividend - $50,000

When the company annouces dividends then the market cap of the company decreases by the same amount at which dividends is declared because the value of the dividends gets reduced from the retained earnings.

So, The new market cap will be (Market cap - Dividends)

= 10,00,000 - 50,000

= 9,50,000

So, the percentage will be [(10,00,000 - 9,50,0000) / 10,00,000]*100

= -5

Part 2 Authorised Participant is a term that appears in the case of Exchange traded funds.

Exchange traded funds refers to the collections of funds much like an investments and traded on Stock exchanges much like stocks. ETFs are the funds that are operated by authorised participants which refers to brokers.