AFB,IncDeclared a Dividend of $2 Per Share,which Was an Increase

question 49

Multiple Choice

AFB,Inc.declared a dividend of $2 per share,which was an increase of 25% from the prior year,yet AFB,Inc.stock declined by 3% the day of the announcement.DAS,Inc.declared a dividend of $2 per share,which was the same as the prior year,and its stock increased in value by 2% on the day of the announcement.These events could be most readily explained by the

• A) information effect.
• B) clientele effect.
• C) expectations theory.
• D) residual dividend theory.

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Definitions:

Bonds

Long-term debt securities issued by corporations and government entities that pay interest to the holder.

Contract Rate

A pre-agreed interest rate applied in the calculation of payments for a specific financial contract.

Market Rate

The prevailing interest rate available in the marketplace for instruments of comparable risk and maturity.

Bond Certificates

Documents that serve as legal proof of ownership of bonds, detailing the terms of the bond issue such as its maturity date, coupon rate, and issuer.