The Annual Returns (In Percent)for a Sample of Stocks in the Technology

question 19

Multiple Choice

The annual returns (in percent) for a sample of stocks in the technology industry over the past year are as follows: The median return is closest to:

• A)-6.6
• B)-5
• C)0
• D)2.8

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Definitions:

Dividend Irrelevance Theory

Holds that dividend policy has no effect on either the price of a firm’s stock or its cost of capital.

Shareholders

Shareholders are individuals or entities that own one or more shares of stock in a public or private corporation, granting them certain rights such as voting on corporate matters and receiving dividends.

Buying and Selling

The basic act of trading or exchanging goods, services, or financial instruments, such as stocks or currencies.

Bird-In-The-Hand Theory

Assumes that investors value a dollar of dividends more highly than a dollar of expected capital gains because the dividend yield component, D1/P0, is less risky than the g component in the total expected return equation rs = D1/P0 + g.