The Ability of Shareholders to Undo the Dividend Policy of the Firm

question 290

Multiple Choice

The ability of shareholders to undo the dividend policy of the firm and create an alternative dividend payment policy via reinvesting dividends or selling shares of stock is called:

• A) Perfect foresight model.
• B) M&M Proposition I.
• C) Capital structure irrelevancy.
• D) Homemade leverage.
• E) Homemade dividend policy.

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Definitions:

Single-Index Model

A simplified way to model the returns of a security or portfolio with respect to the returns of the overall market, using only the market index as the explanatory variable.

Systematic Risk

The risk inherent to the entire market or market segment, also known as non-diversifiable risk or market risk.

Market Index

A statistical measure that tracks the performance of a basket of specific stocks, representing a portion of the overall market to reflect trends or market health.

Index Model

Index Model is a statistical model used in finance to describe the relationship between the returns on an investment and the returns on a market index.