Which of the Following Statements Regarding a Consumer Loan Is

question 57

Multiple Choice

Which of the following statements regarding a consumer loan is true?

• A) A consumer loan is used chiefly to make repeated purchases of relatively low-cost goods and services.
• B) A consumer loan results from a rather informal process and involves no negotiated contracts.
• C) A consumer loan provides credit cards and checks to the consumers.
• D) A consumer loan provides revolving credit to the consumers.
• E) A consumer loan is used mainly to borrow money to pay for big-ticket items.

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Definitions:

Bird-In-The-Hand Theory

Assumes that investors value a dollar of dividends more highly than a dollar of expected capital gains because the dividend yield component, D1/P0, is less risky than the g component in the total expected return equation rs = D1/P0 + g.

Dividend Yield

A financial benchmark that illustrates the relation between a company's per annum dividend issuance and its share price.

Required Return

The expectancy of financial gain on an investment, considering its risk profile, set by investors as a benchmark.

Dividend Irrelevance Theory

A theory suggesting that dividend policy has no effect on a company's value or its stock price.