Simple Simon owns 1,000 shares in the Pasty Pie Corporation, which has just declared a stock dividend of 5%.Just prior to this announcement, Pasty Pie was selling for $10 a share. This announcement will:

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If Simple Simon owns 1,000 shares of Pasty Pie Corporation when Pasty declares a 5% stock dividend, the stock dividend will increase his number of shares to 1,050, but it will not affect the market value of Simple's holdings since the market price per share will also decrease proportionately. The aggregate market value of the firm stays the same, but the number of shares outstanding increases, resulting in a lower market value per share. Simple's proportionate ownership remains the same because his shares increased in the same percentage as the shares outstanding of the firm did. A stock dividend does not result in any cash payments to the shareholders.

Simple Simon Owns 1,000 Shares in the Pasty Pie Corporation