If a Firm Unexpectedly Raises Its Dividend Permanently and by a Substantial

question 74

Multiple Choice

If a firm unexpectedly raises its dividend permanently and by a substantial amount,the firm's stock price:

• A) should rise, given dividend discount models.
• B) should decline, given discounted cash flow analysis.
• C) will remain constant, due to market efficiency.
• D) remain constant, due to random-walk behavior.

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Definitions:

Myopia

A condition or behavior characterized by a lack of foresight or planning for the future, often focusing only on short-term benefits.

Behavioral Economics

The study within economics that delves into how individuals' and institutions' economic decisions are swayed by psychological, emotional, cognitive, cultural, and social factors.

Ultimatum Game

A game in experimental economics where two players decide on how to divide a sum of money; if the receiver does not accept the offer, both get nothing.

Private Interests

Individual or group interests that are not public in nature, often seeking personal gain or advantage.