George Is Considering Buying Shares of Intel

question 156

Multiple Choice

George is considering buying shares of Intel. If the company does well, he will gain $100, but if the company does poorly, he will lose $100. George is risk averse, so for George the magnitude of the pain of losing $100 will ________ the pleasure of gaining $100.

• A) equal
• B) be less than
• C) be greater than
• D) None of the above answers are correct because we cannot compare the pain of losing to the pleasure of gaining.

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Definitions:

Convertible Bonds

Bonds that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.

Diluted Earnings Per Share

A measure of a company's profitability that shows the potential decrease in earnings per share if all convertible securities were exercised or converted into shares.

Stock Dividend

A dividend payment made by a corporation to its shareholders in the form of additional shares, rather than cash.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares, although the overall value of the shares remains the same.