The Importance of the Reinvestment Assumption Increases with a ____

question 28

Multiple Choice

The importance of the reinvestment assumption increases with a ____ coupon and a ____ term to maturity.

• A) Low, short
• B) Low, long
• C) High, short
• D) High, long
• E) Zero, very long

---

Definitions:

Dividends

Payments made by a corporation to its shareholder members, distributing a portion of the company’s earnings to investors.

Common Stock

Represents ownership shares in a corporation, giving holders voting rights and a share in the company's profits via dividends.

Liability

Any form of financial debt or obligation that an individual or company owes, which is recorded on the balance sheet.

Dividend Growth Model

A valuation method that forecasts the price of a stock by using predicted dividends and discounting them back to present value.