Which of the Following Statements Is FALSE

question 65

Multiple Choice

Which of the following statements is FALSE?

• A)In perfect capital markets,holding fixed the investment policy of a firm,the firm's choice of dividend policy is irrelevant and does not affect the initial share price.
• B)In a perfect capital market,when a dividend is paid,the share price drops by the amount of the dividend when the stock begins to trade ex-dividend.
• C)In perfect capital markets,an open market share repurchase has no effect on the stock price,and the stock price is the same as the ex-dividend price if a dividend were paid instead.
• D)In perfect capital markets,investors are indifferent between the firm distributing funds via dividends or share repurchases.By reinvesting dividends or selling shares,they can replicate either payout method on their own.

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Definitions:

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, giving a snapshot of its financial condition.

Unearned Liability

A liability on the balance sheet representing revenues received but not yet earned, typically because the service or good has not yet been delivered.

Zero-Coupon Bonds

Bonds that do not pay periodic interest payments, instead being sold at a discount from their face value and maturing at said value.

Discount Amortization

Discount Amortization refers to the process of gradually reducing the book value of a bond discount over the life of the bond until it reaches its par value.