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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)

Which of the following is the usual effect on a stock's market price on the ex-dividend date, all else being equal?

The price tends to fall by roughly the dividend amount. From the ex-dividend date a new buyer is not entitled to the declared dividend, so the value of that payout leaves the share price, all else being equal.

  1. AThe price tends to fall by roughly the dividend amountCorrect
  2. BThe price tends to rise by the dividend amount
  3. CThe price is unchanged because dividends are taxed
  4. DThe share is delisted for one day

Explanation

On the ex-dividend date, buyers are not entitled to the declared dividend, so the price tends to adjust downward by about the dividend amount. A rise has no logic, and neither taxation nor delisting is involved.

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