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

Question

Quizplus · Accepted Answer

A 3 for 2 share split means that for every 2 shares held by a shareholder, they will receive an additional 1 share. After the share split, the number of shares outstanding will increase by 50%. In this case, if a shareholder had 100 shares before the split, they would receive an additional 50 shares, bringing their total to 150 shares. Since the value of the company has not changed, the market price per share should adjust accordingly.

The new market price per share after the split can be calculated by dividing the pre-split market price by the split ratio, which is 3/2 in this case:
$200 / (3/2) = $133.33

Therefore, we would expect the share to trade at $133.33 immediately after the split goes into effect.

On September 1, 2009, Maryland Corporation's Ordinary Share Was Selling