Series 7 Exam Question 320: Answer and Explanation

Question: 320

JKLM Corporation has declared a $0.40 dividend payable to shareholders of record on Thursday, September 14. What would happen to the opening price of JKLM on Wednesday, September 13?

  • A. It would be reduced by the amount of the dividend.
  • B. It would remain the same.
  • C. It would be increased by the amount of the dividend.
  • D. Cannot be determined

Correct Answer: A

Explanation:

A. Remember, the ex-dividend date (the first day the stock trades without the dividend) is one business day before the record date. In this case, the record date is Thursday, September 14, which makes the ex-dividend date Wednesday, September 13. The opening price on the ex-dividend date is reduced by the amount of the dividend ($0.40 in this case).

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