Which of the Following Statements Is CORRECT

question 25

Multiple Choice

Which of the following statements is CORRECT?

• A) Under the tax laws as they existed in 2007, a dollar received by an individual taxpayer as interest income is taxed at the same rate as a dollar received as dividends.
• B) One nice feature of dividend reinvestment plans (DRIPs) is that they reduce the taxes investors would have to pay if they received cash dividends.
• C) Empirical research indicates that, in general, companies send a negative signal to the marketplace when they announce an increase in the dividend, and, as a result, share prices fall when dividend increases are announced. The reason is that investors interpret the increase as a signal that the firm expects fewer good investment opportunities in the future.
• D) If a company needs to raise new equity capital, a new stock dividend reinvestment plan would make sense. However, if the firm does not need new equity, then an open market purchase dividend reinvestment plan would probably make more sense.
• E) Dividend reinvestment plans have not caught on in most industries, and today over 99% of all DRIPs are offered by utilities.

---

Definitions:

Fundamentals

The basic elements or principles of a subject, theory, or system.

Over-optimism

Over-optimism refers to the tendency of individuals to hold an unrealistically positive view of the future or the outcomes of events, which can affect decision-making processes.

Unrealistic Belief

A conviction or expectation that does not align with actual facts or evidence, often based on incorrect assumptions or misinformation.

Slope

A measure of the steepness, incline, or grade of a line, calculated as the ratio of the vertical change to the horizontal change between two points.