An investor who requires a 17% percent return for a stock that pays no dividends and requires a 13% return for a stock that pays its entire return from dividends is most likely a proponent of
A) the bird-in-the-hand dividend theory.
B) the residual dividend theory.
C) the clientele effect.
D) the information effect.

Question

Quizplus · Accepted Answer

The investor seeking a higher return for a stock that pays no dividends suggests that they adhere to the bird-in-the-hand dividend theory. This theory argues that investors prefer to receive their return from dividends rather than future capital appreciation, as dividends are more certain and tangible. Therefore, an investor demanding a higher return for a non-dividend-paying stock indicates a preference for immediate rewards rather than the possibility of higher returns in the future.

An Investor Who Requires a 17% Percent Return for a Stock