You own 270 shares of stock in Halestorm, Incorporated, that currently sells for $83.80 per share. The company has announced a dividend of $3.50 per share with an ex-dividend date of February 4. Assuming no taxes, what is the value of the stock on February 4?

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Question restatement: You own 270 shares of Halestorm, Incorporated, priced at $83.80 per share. The company declares a dividend of $3.50 per share with an ex-dividend date of February 4. Ignoring taxes, what is the value of the stock on February 4? Answer options: "$80.30", "$79.25", "$82.05", "$87.30", "$83.80".

Step-by-step analysis of each option:
Option 1: $80.30. This matches the standard ex-dividend price adjustment. On the ex-dividend date, the stock price typically drops by the amount of the dividend per share, all else equal. Subtracting $3.50 from the pre-ex-dividend price of $83.80 yields $80.30. Therefore, this value reflects the expected price per share after the dividend is detached.

Option 2: $79.25. This would imply a drop of $4.55 from the pre-dividend price, which does not correspond to the $3.50 dividend. Since the dividend amount is known, a deduction of $4.55 would require an additional factor (like a large market move) that is not stated, making this option inconsistent with the straightforward ex-dividend adjustment.

Option 3: $82.05. This represents a smaller decrease of $1.75 from $83.80. Unless there is market movement exactly offsetting half of the dividend or some other adjustment, this value does not align with the typical ex-dividend mechanism where the price move equals the dividend per share.

Option 4: $87.30. This is an increase relative to the pre-ex-dividend price. An ex-dividend date generally does not cause the stock price to rise by the dividend amount; absent extraordinary positive news or other market effects, the price tends to stay the same or fall after the dividend is detached.

Option 5: $83.80. This would imply no price change on the ex-dividend date, which contradicts the standard market behavior that the stock price drops by the amount of the dividend on the ex-dividend date.

Synthesis and key takeaway: With an ex-dividend date of February 4 and a $3.50 per-share dividend, the expected price per share on that date, assuming taxes are not a factor and all else equal, is the pre-dividend price minus the dividend: $83.80 − $3.50 = $80.30. The other options either imply an incorrect amount of price change, a price increase, or no price change, none of which align with the conventional ex-dividend adjustment.

FIN331101 Homework 3

You own 270 shares of stock in Halestorm, Incorporated, that currently sells for $83.80 per share. The company has announced a dividend of $3.50 per share with an ex-dividend date of February 4. Assuming no taxes, what is the value of the stock on February 4?

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FIN*3311*01 Homework 3

You own 270 shares of stock in Halestorm, Incorporated, that currently sells for $83.80 per share. The company has announced a dividend of $3.50 per share with an ex-dividend date of February 4. Assuming no taxes, what is the value of the stock on February 4?

View Explanation

Log in for full answers

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FIN331101 Homework 3