Dividends that are expected to be paid far into the future have:
A)Great impact on current stock price, due to their expected size
B)Equal impact on current stock price as near-term dividends
C)Lesser impact on current stock price due to discounting
D)No impact on current stock price because they are uncertain

Question

Quizplus · Accepted Answer

Dividends that are expected to be paid far into the future have a lesser impact on current stock price due to discounting. This is because future dividends have to be discounted to reflect the time value of money, which means that their present value is lower. Therefore, the impact of these dividends on current stock price is lower compared to near-term dividends, which have a higher present value.

Dividends That Are Expected to Be Paid Far into the Future