Compare and Contrast a Sticky Dividend Policy with a Residual

question 22

Essay

Compare and contrast a sticky dividend policy with a residual dividend policy.Which policy is more widely used by large corporations? What advantages does that policy have over the other?

---

Definitions:

Inflation Premium

The extra yield that investors demand on securities to compensate for the risk of inflation reducing the value of future cash flows.

Fisher Effect

The Fisher Effect describes the relationship between nominal interest rates, real interest rates, and inflation, asserting that the nominal interest rate is equal to the real interest rate plus inflation.

Interest Rate Risk

The risk of changes in interest rates that can adversely affect the value of an investment.

Term Structure

The relationship between interest rates or bond yields and different terms or maturities, depicted in a curve.