According to the Residual Theory of Dividends, If the Firm's

question 41

Multiple Choice

According to the residual theory of dividends, if the firm's equity need is less than the amount of retained earnings, the firm would

• A) borrow to pay the cash dividend.
• B) declare a dividend equal to the remaining balance.
• C) pay no cash dividends.
• D) not need to consider its dividend policy.

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Definitions:

Mortgages

Loans used to buy property or real estate, where the property itself serves as collateral for the loan.

Treasuries

Government bonds issued by the U.S. Department of the Treasury, considered low-risk investment products.

Relative Value Strategy

An investment strategy that seeks to identify price discrepancies between related financial instruments, such as between stocks and bonds or among different securities in the same sector.

S&P 500 Futures Contracts

Financial contracts that speculate on the future value of the S&P 500 index, allowing investors to bet on the direction of the U.S. stock market.