Investment Company and. Variable Contracts Products Principals (Series 26) Practice Exam

How soon after the record date is the ex-date typically set?

1. The same day

2. The first business day after

3. One week later

4. Two weeks later

The correct answer is: The first business day after

The ex-date is established to provide an official date on which a stock starts trading without the value of the next dividend payment. By convention, the ex-date is set one business day after the record date. This timing is crucial because it affects the eligibility of shareholders to receive the upcoming dividend. If a shareholder purchases a stock on or after the ex-date, they will not receive the declared dividend; only those who hold the stock before the ex-date will be entitled to it. Therefore, the reason for setting the ex-date the first business day after the record date is to give existing shareholders a chance to sell their shares before the ex-date while retaining their entitlement to the dividend. This standard practice allows for a smooth transition for shareholders with regard to dividend payments and clearly delineates the cut-off point for entitlement to dividends.