The time value of money Flashcards
1
Q
What time of lending is considered Risk free?
A
- Lending to the government through the purchase of binds and bills.
2
Q
what is market equilibrium?
A
when demand and supply are equal the market is at equilibrium and therefore we can gather a fair value of stock.
- if market price is higher then fair value an investor will want you to buy that stock.
3
Q
What is tax effect?
A
nations have a higher tax rate associated to dividend income. May prefer no
dividend so that capital gain is paid upon selling the shares.
4
Q
What is clientele effect?
A
when investors invest due to their current financial circumstances.
- high income investors might prefer firms with a high investment rate.
5
Q
What is asymmetric information?
A
Managers may have superior information and use dividend policy to send signals to investors.
