Which of the Following Statements Is Correct About Investors in Ajax

question 70

Multiple Choice

Which of the following statements is correct about investors in Ajax Industries, which has just announced a three-for-one stock split?

• A)investors will triple their wealth after the split
• B)investors' wealth will fall by two-thirds after the split
• C)%age of ownership increases for the investors
• D)earnings per share will fall by two-thirds after the split

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Definitions:

Security Market Line

A graphical representation of the expected return of investments as a function of their risk, specifically their beta.

Expected Return

The average of all the possible returns for an investment, weighted by their respective probabilities.

Beta

A measure of a stock's volatility in relation to the overall market, used to gauge a stock's risk level relative to the market average.

Nondiversifiable Risk

A type of investment risk that is inherent to the entire market or market segment and cannot be eliminated through diversification.