You currently own 200 shares of Hanover Co. The stock closed at a price of $22.3
ID: 2768851 • Letter: Y
Question
You currently own 200 shares of Hanover Co. The stock closed at a price of $22.38 a share today. Tomorrow morning a 10 percent stock dividend will occur. What will be the change in the value of your investment tomorrow assuming there are no other factors affecting the market price of the stock?
a. $0
b. -$447.60
c. $447.60
d. -$2.24
e. $2.24 (this was wrong answer)
You currently own 200 shares of Hanover Co. The stock closed at a price of $22.38 a share today. Tomorrow morning a 10 percent stock dividend will occur. What will be the change in the value of your investment tomorrow assuming there are no other factors affecting the market price of the stock?
a. $0
b. -$447.60
c. $447.60
d. -$2.24
e. $2.24 (this was wrong answer)
Explanation / Answer
Stock dividend and stock split decreases only per share value. It does not change overall market value of company.
Stock price after stock dividend = Old price/(1+Stock dividend %)
= $22.38/(1+10%)
= $20.34
Hence, effect on stock price was -$2.04 ($20.34-$22.38)
Total change = -$2.04×200 = -$408
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