If Issuers of Securities (Borrowers) and Investors Suddenly Expect Interest

question 29

Multiple Choice

If issuers of securities (borrowers) and investors suddenly expect interest rates to decrease, their actions to benefit from their expectations should cause

• A) long-term yields to rise.
• B) short-term yields to decrease.
• C) prices of long-term securities to decrease.
• D) A and B
• E) none of the above

Understand the concept of stock price as the present value of future dividends.

Grasp the typical percentage of earnings paid out as dividends by U.S. companies.

Recognize the types of investors who prefer high dividend-payout stocks.

Comprehend the reasons behind investor aversion to dividend payments.

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Definitions:

Allocative Efficiency

An economic state where resources are allocated in a way that maximizes the net benefit to society.

ATC

Another term for Average Total Cost, it represents the per unit cost of production, calculated by dividing total production cost by the quantity of goods produced.

Profit-Maximizing

A firm's objective of adjusting outputs and pricing to achieve the highest possible profit.

Demand Schedule

A table that shows the quantity of a good or service that consumers are willing to buy at each price point.