A firm's stock price may decline by less than 50% after a 2 for 1 stock split if the reduction in price moves the stock into its optimal trading range.

Question

Quizplus · Accepted Answer

A stock split increases the number of outstanding shares while reducing the price per share proportionally. If the price before the split was high and deterred some investors from buying, the reduction in price after the split can bring the stock price into a more attractive price range, increasing demand and reducing the potential decline in stock price. Therefore, a stock split may not necessarily lead to a decline in stock price by 50%.

A Firm's Stock Price May Decline by Less Than 50