You Own Stock in a Company That Just Announced a 1-3

question 11

Multiple Choice

You own stock in a company that just announced a 1-3 reverse stock split.If shares currently trade at $15 a share,what should the stock price be after the reverse stock split?

• A) $15
• B) $5
• C) $45
• D) $30

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Definitions:

Incentive Conflict

A situation where parties have different, competing goals. In agency relationships, the different goals of principals and agents is an example of incentive conflict.

Agent

A person who acts on behalf of another individual (a principal). Principal–agent problems are created by the incentive conflict between principals and agents.

Principal

An individual who hires another (an agent) to act on his or her behalf.

Incentivize

To motivate or encourage someone by providing a reward or incentive.