Which of the following statements is correct for stock purchased on the last day to trade "cum dividend"?
A) A dividend will be declared on the next trading day.
B) A dividend will be paid on the next trading day.
C) The stock price should decline on the next trading day.
D) The stock price should have declined on the previous trading day.

Question

Quizplus · Accepted Answer

When a stock is purchased on the last day to trade "cum-dividend," it means that the buyer is entitled to receive the upcoming dividend payment. However, the stock price should decrease by the amount of the dividend payment on the next trading day because the dividend payment will reduce the overall value of the company. Therefore, the correct statement is that the stock price should decline on the next trading day.

Which of the Following Statements Is Correct for Stock Purchased