Question

Match the statements in List-I with dividend models in List-II as follows:

List-I	List-II
(a) Dividend Capitalization Approach	(i) Traditional Model
(b) Dividend Policy has a bearing on the share valuation	(ii) Gordon Model
(c) Stock Market places more weight on dividends than on retain earnings	(iii) Walter Model
(d) Dividend payout is irrelevant to the value of the firm	(iv) Modigliani and Miller Model

• A. $\left(a\right)-\left(ii\right),\left(b\right)-\left(iii\right),\left(c\right)-\left(i\right),\left(d\right)-\left(iv\right)$
• B. $\left(a\right)-\left(i\right),\left(b\right)-\left(ii\right),\left(c\right)-\left(iv\right),\left(d\right)-\left(iii\right)$
• C. $\left(a\right)-\left(iv\right),\left(b\right)-\left(i\right),\left(c\right)-\left(iv\right),\left(d\right)-\left(ii\right)$
• D. $\left(a\right)-\left(iii\right),\left(b\right)-\left(iv\right),\left(c\right)-\left(ii\right),\left(d\right)-\left(i\right)$

Answer 1

The correct option is A $\left(a\right)-\left(ii\right),\left(b\right)-\left(iii\right),\left(c\right)-\left(i\right),\left(d\right)-\left(iv\right)$

• The Gordon's Dividend Capitalization Model is a method for calculating the intrinsic value of a stock, exclusive of current market conditions.
  
• Walter’s model on dividend policy believes in the relevance concept of a dividend that affects the valuation of company's shares.
  
• Traditional theory states that the stock market places considerably more weight on dividends than on retained earnings.
  
• Modigliani – Miller theory supports the 'dividend irrelevance' notion. It suggests that dividends are irrelevant in calculating the valuation of a company