The corporation currently has 500,000 shares of stock outstanding that sell for $85 per share. There are no market imperfections. Whats the share price after the corporation has a five for three stock split? What about a 15% and 42.5 % stock dividend? A four for seven reverse stock split?
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The corporation currently has 500,000 shares of stock outstanding that sell for $85 per share. There are no market imperfections. Whats the share price after the corporation has a five for three stock split? What about a 15% and 42.5 % stock dividend? A four for seven reverse stock split?
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Solution Summary
Given no market imperfections, the process and computations are provided.
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Hello!
Given no market imperfections, the way to adjust for stock splits is the following.
When you have an X-for-Y stock split (X is larger than Y, unless it's a reverse split), the new price of the stock is:
Price After Split = (Price Before Split)*(Y/X)
For example, in a 2-for-1 split, the price is multiplied by 1/2, that is, the stock halves in price. In your case, we have a 5-for-3 split. Therefore, we get the following relationship:
Price After Split = $85*(3/5) = $51
The stock goes down to ...
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