Which of the Following Statements Is True

question 28

Multiple Choice

Which of the following statements is true?

• A)When an investor diversifies his investments, the total risk involved reduces.
• B)Dividends paid on stocks are legally not liable to attract taxes.
• C)When a company increases its retained earnings, the dividends paid by it increases.
• D)As a company increases its retained earnings, the stock price of the company is expected to reduce.

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Definitions:

Black-Scholes Option

A mathematical model used to calculate the theoretical price of European put and call options, not accounting for dividends.

Continuous Compounding

The mathematical limit that compound interest can reach if it’s computed and added to the principal balance continuously, leading to exponential growth.

Time Value

Time Value refers to the additional amount that an investor is willing to pay for an option or other financial instrument due to its potential to increase in value over time.

Time Value

The portion of an option's premium that is based on the amount of time until the expiration of the option contract.