In Practice,there May Be an Increase in the Share Price

question 17

Multiple Choice

In practice,there may be an increase in the share price following the announcement by a company of a forthcoming bonus issue.Which of the following is a likely explanation of this phenomenon?

• A)Companies tend to increase their total dividend payout following a bonus issue.
• B)Bonus issues create wealth for shareholders.
• C)Bonus issues reduce the debt/equity ratio and,therefore,the riskiness of the firm.
• D)Bonus issues increase the dividend payout ratio of companies.

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Definitions:

Damages

Compensation sought by or awarded to a party in a lawsuit for losses or injuries incurred due to another party's actions or negligence.

Pleasure Marriage

A temporary marriage contract, recognized in some cultures or religions, primarily aimed at legalizing sexual relations for a determined period.

Premarital Contract

An agreement between individuals planning to marry that outlines the management of their assets and financial matters upon marriage.

Informal Contract

A contract that requires no formalities. Also called simple contract.