In the Theoretical World of Miller and Modigliani

question 91

Multiple Choice

In the theoretical world of Miller and Modigliani

• A)a firm should pay out 100 percent of earnings as dividends to maximize shareholder wealth
• B)the marginal tax rates facing investors are the most important single determinant of dividend policy
• C)dividends are important only for their informational content
• D)dividends reduce investors' uncertainty

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Definitions:

Security Mispricing

The phenomenon when a security (stock, bond, etc.) is priced above or below its intrinsic value.

Risk-Free

Pertaining to an investment with guaranteed returns and negligible risk of financial loss.

Economic Profits

Profits or losses calculated by considering both explicit costs, such as direct expenses, and implicit costs, like opportunity costs.

Arbitrage Opportunity

The opportunity to buy an asset at a low price in one market and sell it for a higher price in another, exploiting price discrepancies.