Question

Dividend Irrelevance Argument Of MM Model Is Based On _______.a) issue of debenture b) Isssue of bonus share c)Arbitrage d) Hedging

Answer 1

Explanation:

Arbitrage process is the operational justification for the Modigliani-Miller hypothesis. Arbitrage is the process of purchasing a security in a market where the price is low and selling it in a market where the price is higher. This results in restoration of equilibrium in the market price of a security assets. This process is a balancing operation which implies that a security cannot sell at different prices.

Answer 2

Dividend Irrelevance Argument Of MM Model Is Based On _______.

a) issue of debenture

b) Isssue of bonus share

c) Arbitrage

d) Hedging

The correct answer is :

c) Arbitrage

Explanation :

Dividend Irrelevance Argument Of MM Model Is Based On ___Arbitrage___.

The arbitrage process is considered an operation for the Modigliani–Miller hypothesis. This process involves the process of buying a security in a market. In this process, the security is bought in the market where the prices are low and she sells it in the market where the prices are high. Due to this, equilibrium is established in the market value of the security assets.

The process of arbitrage is an operational plan to establish an equilibrium, the objective being that the security cannot be sold at different prices.

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