Which of the Following Is a Reason Why the Stock

question 184

Multiple Choice

Which of the following is a reason why the stock price of a firm might drop when a seasoned equity issue is announced?

• A) Managers know the stock is overvalued, so they are selling it while the price is low.
• B) Issuing new equity may indicate the firm has too little debt or excess liquidity.
• C) Stockholders are just acknowledging the fact that if the firm were to issue debt instead, existing shareholders would have to share the gain with the new investors.
• D) It is expensive to issue securities and stockholders are just recognizing the loss in value the firm will incur by paying out this money.
• E) There may be a simple supply and demand problem, that is, the additional share will be in great demand and price usually drops when demand rises.

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Definitions:

Convergence

The coming together of various factors or phenomena to produce a combined effect, or the ability of the eyes to simultaneously turn inward to focus on an object.

Perception

The process by which sensory information is interpreted and understood by the brain, leading to an awareness or understanding of the environment.

Bottom-up Processing

An approach to information processing based on incoming data from the environment to form a perception.

Binocular Disparity

Binocular Disparity is the difference in images seen by the left and right eyes, which the brain interprets to perceive depth, contributing to our three-dimensional vision.