Assume That a Firm Has a Steady Record of Paying

question 67

Multiple Choice

Assume that a firm has a steady record of paying stable dividends for years.Market analysts had expected management to increase the dividend by 7.5% in the latest quarter.However,management announced a 15% increase in the current year's dividend.The market value of the stock rose 20% on the day of the announcement.Which of the following would best explain the stock market's reaction to the announcement?

• A) expectations theory
• B) dividend irrelevance theory
• C) residual dividend theory
• D) agency theory

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