LOS f: Review dividend payment chronology including declaration, holder-of-record, ex-dividend, and payment dates and indicate when the share price will most likely reflect the dividend.

Q1. What is the earliest day on which an investor can currently purchase Amex, Inc., if the investor wants to avoid receiving a dividend and thereby avoid paying tax on the distribution, if the date of record is Thursday, October 31?

A)   Monday, October 28.

B)   Thursday, October 24.

C)   Tuesday, October 29.

Q2. The cut-off date for receiving the dividend is known as the:

A)   holder of record date.

B)   ex-dividend date.

C)   date of payment.

Q3. Alumi Co. pays a dividend. Which of the following events is least likely to cause its stock price to fall? Alumi Co.:

A)   increases its debt to 75% of capital to maximize the level of earnings per share.

B)   issues more common stock.

C)   pays its quarterly dividend.

Q4. Shareholders selling shares between the ex-dividend date and date of record:

A)   forfeit the dividend, with the proceeds staying with the company.

B)   receive the dividend.

C)   forfeit the dividend, with the proceeds going to the buyer.

Q5. Which of the following shows the key dividend dates in their proper sequence?

A)   Declaration date, ex-dividend date, holder-of-record date, payment date.

B)   Declaration date, holder-of-record date, ex-dividend date, payment date.

C)   Ex-dividend date, holder-of-record date, declaration date, payment date.

LOS f: Review dividend payment chronology including declaration, holder-of-record, ex-dividend, and payment dates and indicate when the share price will most likely reflect the dividend. fficeffice" />

Q1. What is the earliest day on which an investor can currently purchase Amex, Inc., if the investor wants to avoid receiving a dividend and thereby avoid paying tax on the distribution, if the date of record is Thursday, October 31?

A)   Monday, October 28.

B)   Thursday, October 24.

C)   Tuesday, October 29.

Correct answer is C)

The ex-dividend date is now two business days prior to the date of record. Counting back two business days identifies Tuesday, October 29 as the date when the shares can be purchased without the dividend.

Q2. The cut-off date for receiving the dividend is known as the:

A)   holder of record date.

B)   ex-dividend date.

C)   date of payment.

Correct answer is B)

The cut-off date for receiving the dividend is known as the ex-dividend date. The holder of record date is the date on which the shareholders of record are designated. The date the checks are mailed out is known as the date of payment.

Q3. Alumi Co. pays a dividend. Which of the following events is least likely to cause its stock price to fall? Alumi Co.:

A)   increases its debt to 75% of capital to maximize the level of earnings per share.

B)   issues more common stock.

C)   pays its quarterly dividend.

Correct answer is C)

Stock prices tend to fall on the ex-dividend date, not on the pay date. While a stock repurchase is a positive signal to investors, a stock offering is a negative signal. While a higher debt level may maximize Alumi Co.’s earnings, that level is not likely to maximize the firm’s price since it is likely to be associated with a higher level of risk.

Q4. Shareholders selling shares between the ex-dividend date and date of record:

A)   forfeit the dividend, with the proceeds staying with the company.

B)   receive the dividend.

C)   forfeit the dividend, with the proceeds going to the buyer.

Correct answer is B)         

The date of record is the date on which the shareholders of record are designated to receive the dividend. The ex-dividend date is the cut-off date for receiving the dividend. Shares sold after the ex-dividend date are sold without claim to the dividend, even if they are sold prior to the date of record. The dividend would be paid to the holder as of the close of trading on the day prior to the ex-dividend date.

Q5. Which of the following shows the key dividend dates in their proper sequence?

A)   Declaration date, ex-dividend date, holder-of-record date, payment date.

B)   Declaration date, holder-of-record date, ex-dividend date, payment date.

C)   Ex-dividend date, holder-of-record date, declaration date, payment date.

Correct answer is A)

The board of directors announce the amount of the dividend, the holder-of-record date, and payment date. The ex-dividend date is two business days prior to the holder-of-record date, giving the firm time to identify the rightful owner of the dividends.

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