Question

Kathy Snow wishes to purchase shares of Countdown​ Computing, Inc. The​ company's board of directors has declared a cash dividend of ​$1.08 to be paid to holders of record on​ Wednesday, Sep. 21 a. What day does this stock begin trading ex​ dividend? b. What is the last day that Kathy can purchase the stock​ (trade date) and still receive the​ dividend? c.  What​ change, if​ any, would you expect in the price per share when the stock begins trading on the​ ex-dividend day? d.  If Kathy held the stock for less than one quarter and then sold it for ​$46.84 per​ share, would she achieve a higher investment return by​ (1) buying the stock prior to the​ ex-dividend date at​ $ per share and collecting the ​$1.08 ​dividend, or​ (2) buying it on the​ ex-dividend date at ​$41.76 per share but not receiving the dividen?

Answer 1

What day does this stock begin trading ex​ dividend?

Ex-Dividend Date: This date is two trading days prior to the record date of dividend. So in this question, Record date is Wednesday, Sep.21 so Ex-dividend date will be Monday, Sep.19.

What is the last day that Kathy can purchase the stock​ (trade date) and still receive the​ dividend?

Investors who buy the shares of the company one day before ex-dividend date, will be eligible to receive the dividend so Kathy can purchase the stock one day before the ex-dividend date, i.e. on friday.

What​ change, if​ any, would you expect in the price per share when the stock begins trading on the​ ex-dividend day?

Share price of stock increases before the ex-dividend date as investors wish to receive dividend so they start buying the shares.

Answer(d): If Kathy buys the shares at $41.76 and sells them at $46.84 then she will receive profit of $5.08 per share while if she receives dividend then it is $1.08 per share. If she does not receive dividend but buys the share at low price and sells at higher price then it will be higher gain.