Pluto, Co. stock is currently trading for $54. Assume there is no new information about the company. If the company issues a 10 percent stock dividend, what will the approximate price of the stock be after the stock dividend is issued? (Round your final answer to two decimal places.)

Question

Quizplus · Accepted Answer

If a company issues a 10% stock dividend, it means that for every 10 shares owned, the shareholder will receive an additional share. Therefore, if an investor owns 100 shares, after the stock dividend they will own 110 shares (100 + 10% stock dividend of 10 shares). 
To find the new price per share, we divide the market value of all shares ($5,940 = 110 shares x $54 per share) by the total number of shares (110). 
$5,940 ÷ 110 = $54.00, which is the original price per share.
Therefore, the new price per share would be slightly less than $54.00. 
To approximate the new price per share, we can multiply the original price per share by 0.9 (100% - 10% stock dividend) and divide by the new total number of shares (110).
$54.00 x 0.9 ÷ 110 = $0.486 per share
Rounding to two decimal places, the approximate price per share after the stock dividend is issued is $49.09, which is answer C.

Pluto, Co Stock Is Currently Trading for $54