Problem: For each of the following four groups of companies, state whether you would expect them to distribute a relatively high or low proportion of current earnings and whether you would expect them to have a relatively high or low price-earnings ratio.
a. High-risk companies.
b. Companies that have recently experienced a temporary decline in profits.
c. Companies that expect to experience a decline in profits.
d. 'Growth' companies with valuable future investment opportunities.
'Risky companies tend to have lower target payout ratios and more gradual adjustment rates.' Explain what is meant by this statement. Why do you think it is so?