Myron Gordon and John Lintner Believe That the Required Return

question 14

Multiple Choice

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

• A) investors are indifferent between dividends and capital gains.
• B) investors require that the dividend yield and 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 value a dollar of expected capital gains more highly than a dollar of expected dividends because of the lower tax rate on capital gains.

---

Definitions:

Quantity Supplied

Quantity supplied is the amount of a good or service that producers are willing and able to sell at a certain price over a given period.

Price

The cost of buying a good or service, influenced by different elements like supply and demand dynamics.

Rises

An increase, typically referring to prices, quantities, or levels in an economic context.

Immediate Market Period

The length of time during which the producers of a product are unable to change the quantity supplied in response to a change in price and in which there is a perfectly inelastic supply.