Dilution in Earnings Per Share Occurs When a Company with

question 37

Multiple Choice

Dilution in earnings per share occurs when a company with

• A)a high P/E ratio buys a company with a low P/E ratio.
• B)a low P/E ratio buys a company with a high P/E ratio.
• C)a high growth rate in earnings per share buys a company with a low growth rate in earnings per share.
• D)a low growth rate in earnings per share buys a company with a high growth rate in earnings per share.

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Definitions:

Straight Bond Value

Straight bond value is the value of a bond that pays fixed interest payments until maturity and repays the principal at maturity without any special features such as convertibility or callability.

Call Value

The price at which a bond or other debt security can be redeemed by the issuer before its maturity date.

Exercise Price

The stipulated price per share at which the holder of a stock option is entitled to buy or sell the stock.

Risk-Free Rate

The theoretical rate of return on an investment with no risk of financial loss, often represented by the yield on government bonds.