1. Which of the following statements is false about the dividend irrelevance proposition ofModigliani and Miller (1961)?An announcement of a decrease in dividends will lead to a decrease in the stockpriceIf dividend policy and investment decisions are unrelated, then the firm value is independent of dividendpolicyThe dividend irrelevance proposition of Modigliani and Miller (1961) assumes an efficientmarketAll of theaboveNone of theabove

According to Modigliani and Miller, if dividend policy and investment decisions are unrelated, then…

Answered: Which of the following statements is…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You believe you have found a trading strategy that could make significant profits. It requires looking at analyst forecasts and purchasing stock where therehas been an upgrade in the recommendation and selling shares where there has been a downgrade in the recommendation.a. Describe which form the Efficient Market Hypothesis will be viola ed if you are able to make significant profits from your trading strategy in the future.b. List three factors that you may be overlooking in assessing the profitability of your trading strategy.
If most participants in the stock market do not follow what is happening to monetary aggregates, prices of common stock will not fully reflect information about them. Is this statement true? Explain your answer
which of the following statements is true? Select one: Investors sell a stock when required return is less than expected return and buy a stock when required return above expected return None of the answers are correct Investors buy a stock when it is under-valued and sell it when it is over-valued Investors sell a stock when it is under-valued and buy it when it is over-valued.
The correlation in returns between two stocks is generally: Multiple Choice negative if they are in different industries lower if they are competitors in the same industry higher if they are competitors in the same industry
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? Group of answer choices None of these statements is true. All of these statements are true. 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. 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. The residual dividend model should not be used, because it is inconsistent with the MM dividend hypothesis.
QUESTION 1 If efficient markets hypothesis is correct, the price of a stock can be predicted ahead of time with careful analysis and proper financial training. is determined by the lowest successful bidder. fully reflects all available relevant information. is a result of none of these.
[S1] If an individual stock's beta is higher than 1, that stock is riskier than the market. [S2] In determining the estimated cost of equity, the CAPM explicitly recognizes a firm’s risk but it does not rely on any dividend assumptions or growth of dividends.a. both are trueb. both are falsec. S1 is trued. S2 is true
4. What forms of market efficiency are violated if investors overreact to good news, resulting in stock price increases followed by stock price decreases: a. Semi-strong form efficiency b. Strong-form efficiency c. Both 1 and 2 d. Neither 1 nor 2

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