Myron Gordon and John Lintner Believe That the Required Return

question 7

Multiple Choice

Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is lowered.Their argument is based on the assumption that

• A) investors are indifferent between dividends and capital gains.
• B) investors require that the dividend yield plus the capital gains yield equal a constant.
• C) capital gains are taxed at a higher rate than dividends.
• D) investors view dividends as being less risky than potential future capital gains.
• E) investors prefer a dollar of expected capital gains to a dollar of expected dividends because of the lower tax rate on capital gains.

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