Suppose You Own Shares of ThreeFor, Inc

question 42

Multiple Choice

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

• A) sell the stock 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 stock after the split-typically, the marker reacts positively to stock splits. The three shares you'll have after the split will be worth more than the single share you have now.
• C) sell the stock now-the stock is likely to be more liquid before the split when there are fewer shares.
• D) sell the stock-irrespective of when the stock is sold. If there is no new information about the stock, then the value of three shares after the split should be the same as the value of the single share you hold now.

Differentiate between the uses of various journals in accounting systems.

Identify the appropriate journal for recording specific types of transactions.

Recognize the role and function of the general journal in the accounting cycle.

Understand how special journals are used to streamline the accounting process.

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Definitions:

Bond Prices

The market price for which a bond is bought or sold, influenced by interest rates, credit quality, and other factors.

Interest Rate Movements

Fluctuations in the interest rate over time which can affect borrowing costs and investment returns.

Stock and Bond Markets

Financial markets where shares of publicly held companies are issued and traded, and where debt securities are bought and sold.

Rates of Return

A measure of the profit or loss of an investment over a specified period, usually expressed as a percentage of the initial investment.