The Present Obligation Component of a Liability Must Be Based

question 23

Multiple Choice

The present obligation component of a liability must be based on:

• A) A legal obligation only.
• B) A construction obligation, meaning there is an obligation to build something.
• C) A social obligation.
• D) A contractual obligation.
• E) None of the given answers.

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Definitions:

Investors

Persons or organizations that invest funds anticipating financial profits in return.

Expectations Theory

With respect to dividends: a dividend that’s lower than expected will be taken as a negative by investors even if it is larger than previous dividends. A variation on the signaling effect of dividends. With respect to interest rates: A theory explaining the shape of the yield curve. The curve slopes up or down depending on whether expectations about future interest and inflation rates are increasing or decreasing.

Signaling Effect

The signaling effect refers to the idea that actions by a company can provide information to investors about its future prospects.

Dividend Increase

An action by a company to raise the amount of money paid to its shareholders as dividends.