Shortcomings of the dividend pricing models suggest that we need a pricing model that is more inclusive than the dividend models and provides expected returns for companies based on aspects besides their historical dividend patterns. Which of the below is NOT one of these aspects?
The company's risk
The premium for taking on risk
Stable dividends
The reward for waiting
Option c .is correct option Stable Dividends is not one of these
aspects. Because CAPM model is better than dividend discount model.
As per CAPM Required Rate = Risk Free rate + Beta * Market risk
premium. Hence it is not dependent on the stability of dividends
.
CAPM model takes into consideration company's risk and premium for
taking on risk. Unlike dividend payout where investors prefer
dividends to capital gains according to capm model reward of
waiting is there.
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