LMN Corporation, a real estate company, is planning to pay a dividend of $0.50 per share. Most

Question:

LMN Corporation, a real estate company, is planning to pay a dividend of $0.50 per share. Most of the investors in LMN are other corporations that pay 40% of their ordinary income and 28% of their capital gains as taxes.

However, they are allowed to exempt 85% of the dividends they receive from taxes. If the shares are selling at $10 per share, how much would you expect the stock price to drop on the ex-dividend day?

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...