The Dividend Policy Must Be Formulated Considering Two Basic Objectives

question 36

Multiple Choice

The dividend policy must be formulated considering two basic objectives, namely ________.

• A) delaying the tax liability of the stockholder and information content
• B) maximizing shareholder wealth and maintaining liquidity
• C) maximizing shareholder wealth and providing for sufficient financing
• D) maintaining liquidity and minimizing the weighted average cost of capital

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Definitions:

Semistrong-Form

A theory related to the Efficient Market Hypothesis that asserts all public information is already reflected in stock prices, along with historical information.

Weak-Form

In finance, a hypothesis suggesting that past stock prices and volumes are not predictive of future stock prices.

Weak Form

Assumes that all information contained in past price movements is fully reflected in current market prices. Thus, information about recent trends in a stock’s price is of no use in selecting a stock.

Semistrong Form

States that current market prices reflect all publicly available information. Therefore, the only way to gain abnormal returns on a stock is to possess inside information about the company’s stock.