Assume that investors' have a 10% required rate of return on MTA stock. According to the Modigliani and Miller dividend indifference theorem, if investors could choose between a $1.00 dividend today and $1.10 dividend one year from today
A) they would prefer $1.00 today.
B) they would prefer $1.10 one year from today.
C) neither alternative would satisfy them.
D) they would have no preference.

Question

Quizplus · Accepted Answer

According to the Modigliani and Miller dividend indifference theorem, investors are indifferent between receiving dividends now or later if the return on the reinvested dividends equals their required rate of return. In this case, a $1.00 dividend growing to $1.10 in one year exactly matches the 10% required rate of return, making investors indifferent between the two options.

Assume That Investors' Have a 10% Required Rate of Return