On September 1, 2009, Maryland Corporation's common stock was selling at a market price of $200 per share. On that date, Maryland announced a 3 for 2 stock split. At what price would you expect the stock to trade immediately after the split goes into effect?

Question

Quizplus · Accepted Answer

A 3 for 2 stock split means that for every two shares currently owned, the shareholder will receive three shares after the split. Therefore, the total number of shares outstanding will increase by 50%. 
To calculate the new stock price after the split, we can use the following formula:

New stock price = (Old stock price * Old shares outstanding) / New shares outstanding

Old shares outstanding = 1 
New shares outstanding = 1.5 
Old stock price = $200

New stock price = ($200 * 1) / 1.5 = $133.33

Therefore, the expected price of Maryland Corporation's common stock immediately after the split goes into effect is $133.33.

On September 1, 2009, Maryland Corporation's Common Stock Was Selling