Question: 1. (Dividend policy and stock prices) Explain the notion of a perfect capital market. Use common-sense language such as you might use in explaining the concept to your grandfather who has never taken a finance class.
2. (Dividend policy and stock prices) The issue as to whether dividend policy has an effect on share prices raises a question as to whether dividends paid out to stockholders are any more "certain" than the expected future dividends the stockholders hope to receive from retention of firm earnings. This is known as the birdin-the-hand theory of dividend policy. Do you agree with this theory? Explain.