26. Cheryl holds 3,000 shares in CBC, a firm with a stock price of $30. CBC has

Question

26. Cheryl holds 3,000 shares in CBC, a firm with a stock price of $30. CBC has announced a dividend of $0.50 per share and will go ex-dividend tomorrow Cheryl likes cash and would prefer twice the dividend. Which of the following actions would you suggest for Cheryl at the moment the stock goes ex-dividend? Assume perfect markets. A. Buy 50.000 shares of the firm B. Buy 150.257 shares of the firm C. Sell 48.666 shares of CBC D. Sell 50.000 shares of CBC E. Sell 50.847 shares of CBC 27. Kristin owns 100 shares of GL stock that she purchased 3 years ago for $12 per share. GL trades today for $10 per share. GL does not pay dividends. Kristen needs cash and decides to create her own "dividend" of $100 by selling a portion of her GL stock. Kristen's ordinary income tax rate that applies to both earned income and dividend income is 30%, and her long-term capital gain tax rate is 15%. How much of her total stock sale proceeds does Kristin get to keep? A. $100 B. $97 C. $94 D. $90 E. $85 28. Which best defines the term dividend record date? A. The date that the dividend is announced to the market B. The date that the dividend is paid to the shareholders C. The date that shareholders listed on the corporate books will receive the dividend D. The date that the stock trades without the dividend E. The date that the highest dividend in the company history has been

Explanation / Answer

1)

Dividend = 3000*0.5 = 1500

Need double dividend of 2*1500 = 3000

To receive extra dividend we need to short the shares

i.e short shares = extra dividend / ex-dividend share price

= (3000-1500) / (30 - 0.5)

= sell 50.85 short (Option E)

2)

Option A

because she is selling shares at loss. Hence, she will receive full amount

3)

Option C

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