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:

Aboriginal Peoples

Indigenous populations native to a land prior to colonization or the formation of nation states, particularly in Australia, Canada, and other parts.

Roma Gypsies

An ethnic group traditionally characterized by a nomadic or peripatetic lifestyle, present across Europe and other parts of the world.

Social Change

The alteration in social structure and cultural patterns over time, driven by collective behavior, innovations, or external influences.

Collective Behaviour

Actions or activities undertaken by a group of people with a common interest or purpose, often spontaneous rather than traditional.