On Monday, November 15, 2004, TheStreet.com reported: An experiment in the efficiency of financial markets will play

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On Monday, November 15, 2004, TheStreet.com reported: "An experiment in the efficiency of financial markets will play out Monday following the expiration of a $3.08 dividend privilege for holders of Microsoft." The story went on: "The stock is currently trading ex-dividend both the special $3 payout and Microsoft's regular $0.08 quarterly dividend, meaning a buyer doesn't receive the money if he acquires the shares now." Microsoft stock ultimately opened for trade at $27.34 on the ex-dividend date (November 15), down $2.63 from its previous close.
a. Assuming that this price drop resulted only from the dividend payment (no other information affected the stock price that day), what does this decline in price imply about the effective dividend tax rate for Microsoft?
b. Based on this information, which of the following investors are most likely to be the marginal investors (the ones who determine the price) in Microsoft stock:
i. Long-term individual investors?
ii. One-year individual investors?
iii. Pension funds?
iv. Corporations?
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Corporate Finance

ISBN: 978-0134083278

4th edition

Authors: Jonathan Berk, Peter DeMarzo

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