The Manager of XYZ Corp

question 96

Multiple Choice

The manager of XYZ Corp. feels that a dividend increase will increase the stock price because many investors value stock with a dividend-discount model. Why might MM disagree with this assertion?

• A) The increased dividend makes the firm much riskier.
• B) Future dividend growth may slow due to lower retained earnings.
• C) Investors prefer capital gains over dividends.
• D)Dividend increases will increase the book value but not the market value of the firm.

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Definitions:

Standard Deviation

A measure of the dispersion or variation in a set of values, indicating how much the values deviate from the mean.

Zero-coupon Bonds

Bonds that do not pay periodic interest payments and are issued at a deep discount to their face value, with the face value repaid at maturity.

Put Option

A financial contract granting the holder the right to sell a specified amount of an underlying asset at a set price within a specified timeframe.

Strike Price

The fixed price at which the owner of an option can purchase (in the case of a call option) or sell (in the case of a put option) the underlying security or commodity.