When a firm announces a two-for-one stock split (in the absence of other new information), investors should expect that:
A) the earnings per share will decrease by 50% but the stock price will remain constant.
B) the stock price will decrease by 50% but earnings per share will remain constant.
C) both the earnings per share and the stock price will remain the same.
D)both earnings per share and the stock price will decrease by 50%.

Question

Quizplus · Accepted Answer

A two-for-one stock split doubles the number of shares outstanding while halving the price per share, so the stock price decreases by 50%. Similarly, earnings are now spread over twice as many shares, so earnings per share decrease by 50%.

When a Firm Announces a Two-For-One Stock Split (In the Absence