Question

Stock YYZ is currently selling at $50 per share. They announced 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

Solution:

Record Date is the date on which shareholder who holds the company's share will get the dividend. Post to that or previous owners will not be eligible for bonus.

Considering this for purchase on July 2, August 1 and August 2, the purchaser needs to pay $50 per share. Post that he needs to pay $48 because dividend will be received by the person who holds share on August 3. On purchase of August 3, the settlement takes place on August 4, making it ineligible to the purchaser for dividend.