Assume that investors have a 10% required rate of return on MTA share.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 is equal to their required rate of return. In this case, a $1.00 dividend growing to $1.10 in one year matches the 10% required rate of return, making investors indifferent between receiving the dividend today or one year from now.

Assume That Investors Have a 10% Required Rate of Return