Suppose a Firm Does Not Pay a Dividend but Repurchases

question 60

Multiple Choice

Suppose a firm does not pay a dividend but repurchases stock using $28 million of cash, the market value of the firm decreases by ________.

• A) $28 million
• B) -$28 million
• C) 0
• D) cannot say for sure

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Definitions:

Unsystematic Risks

The portion of risk in an investment that is attributable to the specific circumstances of an individual company or industry.

Efficient Frontier

A concept in portfolio theory where an investment portfolio is said to be efficient if it offers the highest expected return for a given level of risk.

Volatility

A statistical measure of the dispersion of returns for a given security or market index, indicating how much the price of a security, derivative, or index fluctuates.

Stock Betas

An index for determining the degree of volatility, or built-in risk, that a security or a portfolio encounters in comparison with the market at large.