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Dear Sir, I have the following question.
When should the price of a share or a bond be deemed as cum-div/interest and when ex-div/interest?
I had a task like this: “The company is about to pay $1 dividend on each ordinary share”. The price was deemed cum-div in the solution.
I also had a task like this: “The bonds are traded at $95 as 28 December 2002. The interest is payable on 31 December”. The price was deemed ex-div in the solution of the task.
We don’t know the registration date in both tasks.
If interest is about to be paid then the price is cum-interest. If interest has just been paid then the interest is ex-div.
However, the company has to set a cut-off date up to which the dividend will still go to the original holder (and so anybody buying it after that date will not get the dividend, meaning that the share price becomes ex-div).
Here, because the price is given as $95 on 28 December, the cut-off date will almost certainly have passed and so the bond price will be ex-int (not ex-div 🙂 ).However, in the exam it is always made clear, because there is no ‘set’ cut-off date in real life.
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