The Primary Reason for Creating Dual or Multiple Classes of Stock

question 61

Multiple Choice

The primary reason for creating dual or multiple classes of stock has to do with:

• A) Exchange listing requirements.
• B) Satisfying TSX bylaws.
• C) Freezing out minority shareholders.
• D) Paying for acquisitions.
• E) Control of the firm.

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Definitions:

Arbitrage

The practice of buying an asset in one market and simultaneously selling it in another market at a higher price, thereby profiting from the temporary difference in prices.

Risk-Free Economic Profits

Refers to theoretical profits that an investor can make without taking any market risk, which in reality is very hard to achieve due to market efficiencies.

Short Selling

Short selling is an investment strategy where an investor borrows shares and sells them on the open market, planning to buy them back later at a lower price to profit from the difference.

Equally-Weighted Portfolio

An investment portfolio where each asset is allocated the same percentage of total investment capital.