On March 23, 2015, the board of directors of Mycroft Company declared a quarterl

Question

On March 23, 2015, the board of directors of Mycroft Company declared a quarterly cash dividend on its $1 par common stock of $0.50 per share, payable on May 10, 2015, to the shareholders of record on April 14, 2015. Before April 9, Mycroft’s shares traded in the stock market “with dividend,” meaning that the quoted stock price included the right to receive the dividend. After April 9, the shares traded “ex-dividend,” meaning that the quoted price did not include the right to receive the dividend. Before April 9, Mycroft’s shares were selling for $30 per share . What should happen to Mycroft’s stock price on April 9, the ex-dividend date? What should happen to Mycroft’s stock price on March 23, the dividend declaration date?

Explanation / Answer

When a share has gone ex-dividend it means the amount of dividend has been removed from the value of shares. For the company in question, $0.50 has to be paid. On April 9, when share goes ex-dividend, new share price = earlier share price - dividend = $30 - $ 0.50 = $29.50

Nothing happens to stock price on the dividend declaration date per se.

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