Which of the Following Statements Is True Regarding Trading and Transactions

question 30

Multiple Choice

Which of the following statements is true regarding trading and transactions costs?

• A) As long as share issues are costless,investors are indifferent about whether to receive returns in the form of capital gains or as cash dividends on shares.
• B) If issuing securities entails large costs,both corporations and stockholders should prefer a full-retention strategy regarding dividends.
• C) If investors find creating homemade dividends too costly,they would not be willing to pay a premium for stocks that habitually pay dividends.
• D) All of the above statements are true.
• E) Only statements (a)and (b)are true.

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Definitions:

Required Rate

The minimum annual percentage return that an investment must yield to be considered a viable option by an investor.

Constant Growth DDM

A valuation model that estimates the value of a dividend-paying stock by using predicted dividends that grow at a constant rate in perpetuity.

Intrinsic Value

The inherent or true value of a security, based on underlying assets and earnings, independent of its market value.

Dividends

Payments made by a corporation to its shareholder members, typically derived from the company's profits.