Becker Financial recently completed a 7-for-2 stock split.Prior to the split,its stock sold for $90 per share.If the total market value was unchanged by the split,what was the price of the stock following the split?
A)$23.21
B)$24.43
C)$25.71
D)$27.00

Question

Quizplus · Accepted Answer

In a 7-for-2 stock split, for every 2 shares held, 7 new shares are issued. This means that the total number of shares for Becker Financial increases by a factor of 7/2 = 3.5.

Before the split, there were x shares at $90 per share. The total market value was therefore:

Total market value before = x * $90

After the split, there are 3.5x shares at some new price, p. The total market value is still the same:

Total market value after = 3.5x * p

Since the total market value is unchanged, we can set the two expressions equal to each other and solve for the new price:

x * $90 = 3.5x * p

$90 = 3.5p

p = $25.71

Therefore, the stock price following the split is $25.71. The correct answer is C.

Becker Financial Recently Completed a 7-For-2 Stock Split