In the Event That Active Corp

question 58

Multiple Choice

In the event that Active Corp.,which has a low P/E ratio,acquires Basic Corp.,which has a higher P/E ratio,we could be assured one of the following would occur.

• A) Active Corp.will have an immediate increase in EPS.
• B) Active Corp.will have an immediate decrease in EPS.
• C) Active Corp.will have an immediate increase in the growth rate of EPS.
• D) Active Corp.will have an immediate decrease in P/E.

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Definitions:

Reserve Requirement

The portion of depositors' balances that banks must have on hand as cash or in deposits with the central bank, used as a tool for monetary policy.

Bank Runs

A situation where a large number of a bank's depositors try to withdraw their funds simultaneously over concerns about the bank's solvency.

Reserve Banking

A banking system in which banks hold a fraction of their deposits in reserve, while lending out the remainder to generate profits.

Federal Funds Rate

The interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight, on an uncollateralized basis.