Modigliani and Miller, Recognizing That Dividends Do Somehow Affect Stock

question 96

Multiple Choice

Modigliani and Miller, recognizing that dividends do somehow affect stock prices, suggest thatpositive effects of dividend increases are attributable

• A) directly to the optimal capital structure.
• B) not to the informational content but to the consistency in the payment of dividends.
• C) directly to the dividend policy.
• D) not to the dividend itself but to the informational content of the dividends with respect to future earnings.

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Definitions:

Futures Contract

An agreement to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.

CAPM

The Capital Asset Pricing Model, a theoretical framework used to determine the expected return on an investment, considering risk and the time value of money.

APT

Stands for Arbitrage Pricing Theory, a financial model that estimates the returns on assets based on their risk relative to macroeconomic factors.

Portfolio's Beta

A measure of the volatility, or systematic risk, of a portfolio in comparison to the market as a whole.