Suppose that the market price of Company P is Rs.40 per share and that of Company Q is Rs. 20. If P offers one share of common stock for three shares of Q, the ratio of exchange of market prices would be: O 0.667 O 2 O 1.125 O 1.5
Answers
Explanation:
Suppose that the market price of Company P is Rs.40 per share and that of Company Q is Rs. 20. If P offers one share of common stock for three shares of Q, the ratio of exchange of market prices would be: O 0.667 O 2 O 1.125 O 1.5
Answer:
1.5
Explanation:
d) 1.5.
To determine the ratio of exchange of market prices between Company P and Company Q, we need to compare the relative values of the shares being exchanged. If P offers one share of common stock for three shares of Q, this means that P is valuing its shares at three times the value of Q's shares.
If the market price of Company P is Rs40 per share and that of Company Q is Rs20, this means that the market value of three shares of Q is Rs60 (i.e., 3 x 20 = 60).
Therefore, to exchange one share of P for three shares of Q, the total market value being exchanged is Rs100 (i.e., 40 x 1 + 20 x 3 = 100).
The ratio of exchange of market prices can be determined by dividing the market value of P's share by the total market value being exchanged:
Market value of P's share = Rs40
Total market value being exchanged = Rs100
Ratio of exchange of market prices = 40/100 = 0.4
However, the question is asking for the ratio of exchange of market prices, which is the reciprocal of the ratio of exchange of market values. Therefore, the ratio of exchange of market prices between Company P and Company Q is:
Ratio of exchange of market prices = 1/0.4 = 2.5
So, the ratio of exchange of market prices is 2.5, which is equivalent to 1.5 when rounded to one decimal place.
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