If the Modigliani and Miller Hypothesis About Dividends Is Correct,and

question 52

Multiple Choice

If the Modigliani and Miller hypothesis about dividends is correct,and if one found a group of companies which differed only with respect to dividend policy,which of the following statements would be most correct?

• A) The residual dividend model should not be used,because it is inconsistent with the MM dividend hypothesis.
• B) The total expected return,which in equilibrium is also equal to the required return,would be higher for those companies with lower payout ratios because of the greater risk associated with capital gains versus dividends.
• C) If the expected total return of each of the sample companies were divided into a dividend yield and a growth rate,and then a scatter diagram (or regression)analysis were undertaken,then the slope of the regression line (or b in the equation D₁/P₀ = a + b(g))would be equal to +1.0.
• D) None of the above statements is true.
• E) All of the above statements are true.

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Definitions:

S Data

Self-report data, a type of psychological data obtained by asking subjects to reflect on and report their own thoughts, feelings, and behaviors.

Definitional Truth

A statement or assertion that is true by virtue of its definition, meaning, or the words used in its expression, without requiring external evidence for verification.

Expectancy Effect

The influence of the researcher's or participant's expectations on the outcome of an experiment or study.

Performance-Based Personality Tests

Evaluations designed to assess personality traits through the analysis of behaviors in specific tasks or situations, rather than through self-report questionnaires.