Which of the Following Statements Best Describes Stock Splits

question 68

Multiple Choice

Which of the following statements best describes stock splits?

• A)When firms are deciding on the size of stock splits-say, whether to declare a 2-for-1 split or a 3-for-1 split-it is best to declare the smaller one, in this case, the 2-for-1 split, because then the after-split price will be higher than if the 3-for-1 split had been used.
• B)Stock splits create more administrative problems for investors than stock dividends, especially determining the tax basis of their shares when they decide to sell them, so today, stock dividends are used far more often than stock splits.
• C)When a company declares a stock split, the price of the stock typically declines-by about 50% after a 2-for-1 split-and this necessarily reduces the total market value of the equity.
• D)If a firm's stock price is quite high relative to most stocks-say, $500 per share-then it can declare a stock split of say 10-for-1 so as to bring the price down to something close to $50. Moreover, if the price is relatively low-say, $2 per share-then it can declare a "reverse split" of, say, 1-for-25 so as to bring the price up to somewhere around $50 per share.

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Definitions:

Occipital Lobe

The region of the cerebral cortex located at the back of the brain, responsible for processing visual information.

Prefrontal Cortex

The part of the brain located at the front of the frontal lobe, responsible for decision-making, problem-solving, and regulating behavior.

Visually Complex

Referring to images, environments, or scenes that contain a large amount of visual elements or intricate details.

Paying Attention

The process of focusing cognitive resources on a specific aspect of the environment while ignoring other perceivable information.