On September 1, 2011, Miami Corporation's common stock was selling at a market price of $300 per share. On that date, Miami announced a 2 for 1 stock split. At what price would you expect the stock to trade immediately after the split goes into effect?

Question

Quizplus · Accepted Answer

A 2 for 1 stock split means that for every one share an investor previously held, they will now hold two shares. However, the total value of their investment remains the same. Therefore, the market price of each share will decrease proportionally to the increase in the number of shares. In this case, after the stock split, there will be twice as many shares outstanding, and the new market price per share would be $150 ($300 divided by 2).

On September 1, 2011, Miami Corporation's Common Stock Was Selling