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

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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.


Definitions:

Psychodynamic Theories

A group of theories in psychology that emphasize the influence of the unconscious mind on behavior and are based on the ideas of Sigmund Freud.

Sigmund Freud

An Austrian neurologist and the founder of psychoanalysis, a clinical method for treating psychopathology through dialogue between a patient and a psychoanalyst.

Psychoanalytic Theory

A theory of personality development and the workings of the mind proposed by Sigmund Freud that emphasizes unconscious processes and childhood experiences.

Conscious Thought Patterns

The deliberate and aware sequence of thoughts or mental images that one can recognize and potentially control.

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