An investor owns some stock in? Harry\'s Pottery Inc. The stock recently underwe

Question

An investor owns some stock in? Harry's Pottery Inc. The stock recently underwent a

55?-for-44

stock split. If the stock was trading at

?$26.6526.65

per share just before the? split, how much is each share most likely selling for after the? split? If the investor owned

300300

shares of the stock before the? split, how many shares would she own? afterward?

If the stock was trading at

?$26.6526.65

per share just before the? split, then after the split each share most likely selling for????????????

?$nothing.

?(Round to the nearest?cent.)

Explanation / Answer

Stock split is basically a corporate action where a company divides the existing shares into multiple shares. So, 2-for-1 stock split means for every 1 stock issued and existing for the company, it would be divided into 2 shares. So, an investor who owns 10 shares pre-split, will hold 20 shares post-split.

But the market capitalization of the company remains the same.

No. of shares pre-split * Price of Share pre-split = No. of shares post-split * Price of Share post-split

Now, let us move to the question. For 55-for-44 stock split, every 44 stocks held pre-split, investor will get 55 stocks post-split. Now, to calculate the post-split price, assume there are only 44 shares issued pre-split, price of each is $26.65

Hence, putting our values in the equation we discussed above,

44 * 26.65 = 55 * Price of share post-split

Price of share post-split = $21.3

Now, if investor held 300 shares of this stock pre-split, post-split he will have (again using the same equation):

300 * 26.65 = No. of shares post-split * 21.32

No. of shares post-split = 375 shares

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