ECONOMICS
FINANCIAL MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The price of the share must increase by the same amount of dividend paid
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The price of the share must remain unchanged
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The price of the share must decrease by the same amount of dividend paid
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The price must increase irrespective of the divided paid or not
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Detailed explanation-1: -Stock Dividends After the declaration of a stock dividend, the stock’s price often increases. However, because a stock dividend increases the number of shares outstanding while the value of the company remains stable, it dilutes the book value per common share, and the stock price is reduced accordingly.
Detailed explanation-2: -Dividends are not specifically part of stockholder equity, but the payout of cash dividends reduces the amount of stockholder equity on a company’s balance sheet. This is so because cash dividends are paid out of retained earnings, which directly reduces stockholder equity.
Detailed explanation-3: -Market reactions to dividend events are likely shaped by whether the market is efficient or not. If the market is inefficient prices on the market will not reflect the value of the stock. Moreover, If the market is efficient, it means that most forms of market analysis are a waste of time and money.
Detailed explanation-4: -The cost of capital and the market value of any firm are not affected by dividend policy. It means that retain cash or paying a dividend does not matter.