Question

On 29 July, during the trading day, a company announced a dividend of $0.33 per share with an ex-dividend date of 28 August. The expected dividend was only $0.28 per share. The dividend payment date was 20 September. If there was no other information or market-wide factors affecting the valuation of the company, which statement best describes the likely change in share price of the company from the close of trading on 19 September to the close of trading on 20 September.

	a.	There is no reason for the share prices to increase or to decrease
	b.	Share prices are likely to decrease by approximately $0.05 per share
	c.	Share prices are likely to decrease by approximately $0.33 per share
	d.	Share prices are likely to increase by approximately $0.33 per share
	e.	None of the above statements is correct

Answer 1

On the payment date of dividend, stock price is not likely to decrease because dividend has already been discounted.

Ex dividend date is 28 August so it will be mean that stock has already discounted the Dividend in August and only the payment date is 20 September, so it is just the date when dividend cheques are sent to shareholders account and it is known already in advance and discounted so there will not be any effect on the share price.

So correct answer will be option (A) there is no reason for the share price to increase or decrease