Question:

Which of the following is NOT consistent with the life cycle growth theory of dividend

policy?

In the growth stage, a company should declare stock dividends.

In the development stage, a company should pay some low cash dividends.

In the maturity stage, a company should pay moderate to high cash dividends.

In the expansion stage, a company should pay low to medium cash dividends.

Which of the following conclusions about dividend policy is reasonable?

An inverse relation should exist between the amount of acceptable investments a firm has

and the dividends remitted to investors.

Management's actions regarding dividends might carry greater weight than a statement

by management that earnings will be increasing.

Management should avoid surprising investors when it comes to the firm's dividend

decision.

All of the above are reasonable.

Which of the following conclusions on the importance of a dividend policy is FALSE?

As a firm's investment opportunities increase, the dividend payout ratio should decrease.

The firm's expected earning power and the risk of these earnings are more important to

the investor than the dividend policy.

Dividends can influence stock price by the investor's desire to minimize and$/$or defer taxes

and from the role of dividends in minimizing agency costs.

In order to avoid surprising investors, management should anticipate financing needs for

the short$-$term but not for the long$-$term.

Dividends tend to be more stable than:

cash flow

earnings

preferred stock

both $b$ and $c$

A stable dividend policy generally leads to a lower required rate of return on the part of the

investor when compared to similar stocks with erratic fluctuations in dividends.

True

FalseQuestion:

Which of the below statement is TRUE?

Bond rated as AAA has high risk as compared to bond rated as BBB

Bond rated as AAA has high return as compared to bond rated as $BBB$

Bond rated as AAA has lower risk as compared to bond rated as BBB

Bond rated as BBB has stable income as compared to bond rated as AAA

In bond investment, what is default risk?

The probability that changes in market rates of interest will affect bond's value

The probability that the borrower will not be able to pay interest or principal value of a

bond when it is due

The probability that a bond will be difficult to sell at a reasonable price in the market

The probability that a bond will be redeemed before the scheduled maturity date.

Preferred stock is known a hybrid security because it has combinations characteristics of

common stock and bonds.

True

False

Preferred stock is known a hybrid security because it has combinations characteristics of

common stock and bonds.

True

False

Bond is a long$-$term debt instrument indicating that a corporation has borrowed a certain

amount of money and promises to pay fixed amount interest payment every year and

repayment of principal at maturity.

True

False

Share is a debt security which represents a portion of the owner's capital in a business, also

indicates ownership in a corporation.

True

False