Myron Gordon and John Lintner Believe That the Required Return

question 47

Multiple Choice

Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is decreased.Their argument is based on the assumption that

• A) investors require that the dividend yield and capital gains yield equal a constant.
• B) capital gains are taxed at a higher rate than dividends.
• C) investors view dividends as being less risky than potential future capital gains.
• D) investors value a dollar of expected capital gains more highly than a dollar of expected dividends because of the lower tax rate on capital gains.
• E) investors are indifferent between dividends and capital gains.

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Definitions:

Clavicle

A long bone that serves as a strut between the shoulder blade and the sternum or breastbone, commonly known as the collarbone.

Solid Matter

Substances that are firm and maintain a fixed volume and shape, as opposed to liquids or gases.

Bone

A dense, hard connective tissue composing the skeleton of most vertebrates, providing support, protection, and aiding in movement.

Calcified

Having deposits of calcium salts within tissues, which can indicate aging or pathological changes.