The Economics of Money, Banking, and Financial Markets 10th Edition by Frederic Mishkin

Exercise 2

A company has just announced a 3-for-l stock split, effective immediately. Prior to the split, the company had a market value of $5 billion with 100 million shares outstanding. Assuming the split conveys no new information about the company, what are the value of the company, the number of shares outstanding, and the price per share after the split? If the actual market price immediately following the split is $17.00 per share, what does this tell us about market efficiency?