A Firm Wants to Maintain a Minimum Stock Price of $15

question 6

Multiple Choice

A firm wants to maintain a minimum stock price of $15 a share.Due to a recent market downturn,the stock is currently selling for $6 a share.The firm should consider a:

• A)3-for-1 stock split.
• B)4-for-1 stock split.
• C)1-for-3 reverse stock split.
• D)1-for-4 reverse stock split.
• E)1-for-5 reverse stock split.

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Definitions:

Moral Hazard

The situation where one party takes risks because they know they will not bear the full consequences of their actions, often due to asymmetric information or contracts.

Supply Curve

A visual model that illustrates the association between the pricing of goods and their supply quantity.

Diversification

Reducing risk by investing in several different things, so that the possible losses are independent events.

Pooling

A strong form of diversification in which an investor takes a small share of the risk in many independent events, so the payoff has very little total overall risk.