Generally, Management Undertakes a Reverse Stock Split to

question 8

Multiple Choice

Generally, management undertakes a reverse stock split to

• A) send a signal to investors that the company is expected to perform poorly.
• B) meet the minimum requirements to be listed on one of the major stock exchanges.
• C) increase the liquidity of shares by decreasing the number of share available.
• D) reduce the administrative costs associated with investor relations.

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Definitions:

Capital-allocation Line

A line on a graph that represents the risk-and-return profiles of risky assets, showing the possible combinations of risk and return that are available.

Efficient Frontier

A concept in modern portfolio theory representing a set of optimal investment portfolios that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return.

Capital Asset Pricing Model

A model that describes the relationship between systemic risk and expected return for assets, particularly stocks, used to calculate a theoretically appropriate required rate of return for an asset, given its non-diversifiable risk.

Expected Rate

The anticipated return on an investment based on historical averages, interest rates, or economic indicators.