Big Bank Canada has done extremely well in recent years,and its stock now sells for $100 per share.Management wants to get the price down to a more typical level,which it thinks is $50 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

If the management wants to get the stock price down to $50 per share from $100 per share, they need to reduce the price by 50%. A stock split can be used to achieve this by increasing the number of shares available and reducing the price per share. To get to a $50 per share price after the split, each old share should be split into two new shares. This results in doubling the number of shares and halving the price per share, which means each shareholder will have twice as many shares worth half the price they had before the split. Therefore, the correct choice is A) 2.

Big Bank Canada Has Done Extremely Well in Recent Years,and