Simon and Simon, makers of cell phones, has a history of paying a dividend of $1

Question

Simon and Simon, makers of cell phones, has a history of paying a dividend of $1 per share to their shareholders. Which of the following describes the likely response to the per share price of Simon and Simon with respect to the dividend? a. The stock price will fall by more than $1 on the record data b. The stock price will not rise nor fall on any of these dates c. The stock price will rise by more than $1 on the record date d. The stock price will rise by $1 on the ex-dividend date e. The stock price will fall by $1 on the ex-dividend date

Explanation / Answer

1.Answer (E) The stock price will fall by $1 on ex-dividend date

                         When a dividend paid several things happen,one of the main thing is decrease in price of share by the amount of dividend paid.For most dividends this is usually not obseved amidst the up and down movements of a normal day's trading. But it becomes easily apparent,however on the ex dividend dates for larger dividends.

                         The main reason for this adjustment of price is that amount paid out in dividend no longer belongs to company and this reflected by a reduction in the company's market capitalization.Instead,It belongs to individual shareholders.

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