Keys Financial has done extremely well in recent years, and its stock now sells for $175 per share. Management wants to get the price down to a more typical level, which it thinks is $25 per share. What stock split would be required to get to this price, assuming the transaction has no effect on the total market value? Put another way, how many new shares should be given per one old share?

Question

Quizplus · Accepted Answer

To get from $175 per share to $25 per share, the price must be divided by 7. The stock split ratio would be 7 new shares for every 1 old share, resulting in a total of 8 shares (1 old share + 7 new shares) with a market value equal to the original 1 share. Therefore, the correct answer is 7.00.

Keys Financial Has Done Extremely Well in Recent Years, and Its