Which of the Following Statements Is Most Correct

question 18

Multiple Choice

Which of the following statements is most correct?

• A) If a company wants to issue new shares of common stock and also wants to implement a dividend reinvestment plan, then it should implement a new-stock dividend reinvestment plan, rather than an open-market purchase plan.
• B) If a company undertakes a 3-for-1 stock split, then the number of shares outstanding should fall, and the stock price should rise.
• C) If a company wants to reduce its debt ratio, then it should repurchase some of its common stock.
• D) Answers a and c are correct.
• E) Answers b and c are correct.

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Definitions:

Debenture

A type of debt instrument that is not secured by physical assets or collateral but is based on the issuer's creditworthiness and reputation.

Risk Premium

The additional return over the risk-free rate that an investment is expected to yield, compensating investors for taking on higher risk.

Default Risk

The risk of loss arising from a debtor failing to make required payments on their debt obligation.

Cost Of Borrowing

The total expense that a borrower pays to secure and utilize a loan, including interest rates, fees, and other charges.