In a World with Significant flOtation Costs, Investors Will Generally

question 12

True/False

In a world with significant flotation costs, investors will generally prefer low-dividend stocks to high-
dividend stocks, all else equal.

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Definitions:

Floating-rate Debt

Debt instruments, such as bonds or loans, that have variable interest rates that adjust over the tenure of the obligation.

Market Interest Rate

The prevailing rate at which interest is offered on deposits or loans in the financial markets for a particular term and risk profile.

Effective Interest Rate

An adjusted interest rate that accurately reflects the cost of borrowing including fees and compounding.

Stated Rate

The annual interest rate declared on a loan or investment, not accounting for compounding or additional fees.