Question

Mirembe 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 Mirembe 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:

No corporation has a legal obligation to distribute dividends to common stock shareholders, even if they make a lot of money, or they have a lot of cash available. The only thing shareholders can do to change a corporation's dividend distribution policy is to elect a new board of directors.

In Mirembe's case I doubt that she has enough money for to board to pay attention to her. If Mirembe really needs an annual return, then she should invest her money in bonds.