Question

Stock XYX is currently selling at $50 per share. They announce on July 1 that on August 15th they will pay a $2 per share dividend. Given that there are no taxes or other market imperfections, you expect the price to drop to $48 after the dividend is paid. The record date for the dividend will be August 3. If you buy the stock, it will settle the next day. If you buy on which of the following days do you expect to pay $50 per share? Remember to choose all that apply.

July 2

August 1

August 2

August 3

August 4

August 14

Answer 1

Hello

YOUR REQUIRED ANSWERS ARE : 2 July and 1 August

Record date is a date on which company checks its records to identify shareholders to whom dividend will be paid. Hence, the person must hold the security in his/her demat to get the dividend on the record date.

Hence, in the given question, 3Aug is the record date and hence, if we buy 2 days before, i.e. 1Aug, we can get it for $50.

Hence, price will fall on Aug2 and we can buy it for $50 on 2July and 1 Aug.

Thanks!

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