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:

Bearer

A person who is in possession of a negotiable instrument that is payable to the “bearer” or “cash” or that has been indorsed in blank.

Indorses

To sign the back of a financial document, transferring interest or rights to another party.

Holder in Due Course

A party that has acquired a negotiable instrument in good faith and without notice of any defect in title.

Maker

The individual or entity that creates or produces an item or is the original writer of a check or promissory note.