Chapter 17, Problem 1CC

Summary Introduction

Ex-Dividend: A stock dividend is treated as ex-dividend when company confirms the person to receive the payment of dividend.

Record Date: The date on which company decides to pay the dividend to its shareholders is called as the record date.

To determine:

The ex-dividend date and its significance.

Explanation of Solution

The ex-dividend date is the date which is set two days before the record date. Any shareholder who buys the stock after ex-dividend date does not have any right to receive the dividend.

For example, if the record date of stock is 15 January 2018 then, its ex-dividend date will be two days before the record date that is 13 January 2018

The significance of ex-dividend date for the shareholders is:

• Investors who want to receive the dividend must purchase the stock three days before the record date.

• The ex-dividend date is set two days before the record date. Therefore, in order to receive the dividend investors need to have the stock one day before the ex-dividend date.

• If a shareholder buys the stock on the ex-dividend date then, that shareholder is not liable to receive the dividend.

Conclusion

Thus, a shareholder must purchase the stock one day before the ex-dividend date or three days before the record date to receive the dividend.