Suppose You Own Shares of 3For Ltd

question 71

Multiple Choice

Suppose you own shares of 3For Ltd., which has just announced a 3-for-1 share split. Immediately after the announcement, the price of the company's shares rose by 5 per cent. You don't expect any new information about the company until after the share split. Ignoring any discounting for time, if you intend to sell your shares soon, you should:

• A) sell the shares now-the single share you have now is likely to be worth more than the three shares you'll have after the split.
• B) sell the shares after the split-typically, the marker reacts positively to share splits. The three shares you'll have after the split will be worth more than the single share you have now.
• C) sell the shares now-the shares are likely to be more liquid before the split when there are fewer shares.
• D) It doesn't matter when the shares are sold. If there is no new information about the shares, then the value of three shares after the split should be the same as the value of the single share you hold now.

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