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27 December, 00:03

Assume that firm has a stead record of paying stable dividend for years. Market analysts had expected management to increase the dividend by 7.5% in the latest quarter. However, management announced a 15% increase in the current year's dividend. The market value of the stock rose 20% on the day of the announcement. Which of the following would best explain the stock market's reaction to the announcement? A. Expectations TheoryB. Dividend Irrelevance TheoryC. Residual Dividend TheoryD. Agency Theory

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  1. 27 December, 00:12
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    (A) Expectations Theory

    Explanation:

    Expectations theory attempts to explain the term structure of interest rates by predicting what short-term interest rates will be in the future based on current long-term interest rates. This theory suggests that an investor earns the same amount of interest by investing in two consecutive one-year bond investments versus investing in one two-year bond today
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Home » Business » Assume that firm has a stead record of paying stable dividend for years. Market analysts had expected management to increase the dividend by 7.5% in the latest quarter. However, management announced a 15% increase in the current year's dividend.
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