Which of the Following Statements Is FALSE

question 26

Multiple Choice

Which of the following statements is FALSE?

• A) As firms mature, their earnings exceed their investment needs and they begin to pay dividends.
• B) Total return equals earnings multiplied by the dividend payout rate.
• C) Cutting the firm's dividend to increase investment will raise the stock price if, and only if, the new investments have a positive net present value (NPV).
• D) We cannot use the constant dividend growth model to value the stock of a firm with rapid or changing growth.

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Definitions:

Term Structure

The relationship between the interest rates or yields of bonds and their respective maturities.

Federal Government Bonds

Securities issued by a national government's treasury, often considered low-risk investments.

Risk Premium

The additional return expected by an investor for taking on a higher level of risk.

Nominal Interest Rate

The rate of interest before adjustment for inflation, representing the face value of interest payments.