Suppose Two Equally Risky Shares, Div and Cap, Offer the Same

question 7

Essay

Suppose two equally risky shares, Div and Cap, offer the same expected return before tax. Div shares pay a generous dividend but offer low expected capital gains. Cap shares pay low dividends but offer high expected capital gains. Which one of the two shares would a pension fund prefer? An individual? A corporation? Explain your answers.

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Definitions:

Negative Attitude

A predisposition or a tendency to respond unfavorably or with disapproval towards people, groups, ideas, or activities.

Overweight People

This term refers to individuals having a body weight more than what is considered normal or healthy for a given height, often measured by the Body Mass Index (BMI).

Lexical Decision

A psychological task where participants decide as quickly as possible whether a string of letters is a real word or a non-word, used to investigate processes of word recognition.

Thrifty Gene

A hypothesis suggesting that certain genes make individuals more efficient at food intake and storage, historically advantageous during periods of food scarcity but potentially leading to obesity in societies with abundant food.