It Has Been Argued That Investors Prefer High-Payout Companies Because

question 13

True/False

It has been argued that investors prefer high-payout companies because dividends are more certain (less risky)than the capital gains that are supposed to come from retained earnings.However,Miller and Modigliani say that this argument is incorrect,and they call it the "bird-in-the-hand fallacy." MM base their argument on the belief that most dividends are reinvested in stocks,hence are exposed to the same risks as reinvested earnings.

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Definitions:

Long Lines

Typically a result of excessive demand or insufficient supply, creating a situation where people have to wait for a long time to avail of a service or purchase a product.

Rationing Methods

Techniques used to distribute scarce goods among consumers when demand exceeds supply, such as price increments, waiting lists, or coupons.

Binding Price Ceiling

A government-imposed limit on the price of a good or service that is set below the equilibrium market price, leading to shortages.

Binding Price Ceiling

A price ceiling set below the equilibrium price, leading to a shortage of goods since demand exceeds supply at the set price.