The cost of common stock is usually greater than the simple dividend yield because:
A) investors perceive risk in common stock.
B) investors expect both a current dividend and future growth.
C) dividends are not tax-deductible.
D) the company must make profits before it can pay dividends.

Question

Quizplus · Accepted Answer

The cost of common stock is usually greater than the simple dividend yield because investors expect both a current dividend and future growth. Common stock represents ownership in a company, and investors expect to receive both current income through dividends and future growth in the form of capital appreciation. This expectation of future growth results in a higher cost of common stock than the simple dividend yield.

The Cost of Common Stock Is Usually Greater Than the Simple