A Three-Month Treasury Bill Rate Is Not Free of Risk

question 4

True/False

A three-month Treasury bill rate is not free of risk for a five- or ten-year period, since interest and principal received at maturity must be reinvested at three month intervals.

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Definitions:

Dividend Cuts

A reduction in the dividend payments announced by a company, often due to financial difficulties or a need to retain more earnings for investments.

Target D/E Ratio

The desired debt-to-equity ratio that a company aims to achieve to optimize its capital structure.

Residual Dividend Policy

Residual Dividend Policy is a strategy where a company pays dividends out of the residual or leftover equity only after all project capital needs are met.

Dividend Irrelevance Theory

Holds that dividend policy has no effect on either the price of a firm’s stock or its cost of capital.