Dividends that are expected to be paid far into the future have:
A) great impact on current stock price due to their expected size.
B) equal impact on current stock price as near-term dividends.
C) lesser impact on current stock price due to discounting.
D) no impact on current stock price because they are uncertain.

Question

Quizplus · Accepted Answer

Dividends paid in the distant future have a lower impact on the current stock price due to the concept of discounting. This means that future cash flows are brought back to their present value using a discount rate. The farther in the future the cash flow occurs, the greater the discounting effect, resulting in a lower impact on the current stock price.

Dividends That Are Expected to Be Paid Far into the Future