Question

Alma is interested in receiving income to help save money for her grandson’s college education. She is considering investing in the stock of a fast-growing technology company that is promising a rather high dividend rate to shareholders. One thing it will be helpful for Alma to remember is_______.
A. that dividends are always based on the prevailing market price of the stock.
B. the dividend rate of a company cannot be changed once it is set.
C. fast-growing companies are rather secure investments to purchase.
D. the company does not have a legal obligation to pay dividends when promised.

Answer 1

Answer:

D. the company does not have a legal obligation to pay dividends when promised.

Explanation:

Dividends are share of income distributed by the company to shareholders when the company performs good, and earns profit.

But since it is a distribution of income and not a mandatory payment, there might be chances that company do not pay dividends, and might retain the income earned for future growth prospects.

Thus, in order to earn money fast although the company promises to make dividend payments, but it shall be taken care, that the company will necessarily pay dividends.