Due to Clientele Effect, Modigliani and Miller Argue That the Shareholders

question 103

True/False

Due to clientele effect, Modigliani and Miller argue that the shareholders get what they expect and, thus, the value of the firm's stock is unaffected by dividend policy.

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Definitions:

Premium on Bonds Payable

The amount by which the cash received from issuing bonds exceeds their face value, signifying an interest rate lower than the market rate.

Adjunct Liability Account

An account that is associated with a liability and increases its amount, unlike a contra liability account which reduces it.

Call Option

A financial contract giving the buyer the right but not the obligation to buy an asset at a specified price within a certain period.

Bonds

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental, where the borrower commits to paying back the principal along with interest.