Suppose You Own Shares of ThreeFor, Inc

question 13

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) It doesn't matter 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.

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Definitions:

Total Liabilities

The combined amount of debts and obligations that a company owes to others, reported on its balance sheet.

Total Assets

The sum of all current and non-current assets owned by a company, reflecting the company’s total resources that can be used to generate revenue.

Sales Data

Sales data encompasses the records and information regarding the quantity, price, and characteristics of products or services sold by a company.

Percentage Increase

A measure of how much a quantity has grown relative to its previous value, expressed as a percentage.