In a three for two stock split for a company that previously had 1 million shares outstanding selling at $100 per share and a total market value of $100 million, which of the following is true:
A)the number of outstanding shares will drop to 666,666, and the stock price will increase to $150.
B)the number of outstanding shares will increase to 1.5 million, and the stock price will drop to $66.67.
C)the number of outstanding shares will increase to 1.5 million, and the stock price will rise to $133.33.
D)the market value of the firm will increase.

Question

Quizplus · Accepted Answer

In a three for two stock split, the number of outstanding shares will increase by 50% (from 1 million to 1.5 million). However, the stock price will adjust accordingly to maintain the total market value of the company. Therefore, the new stock price will be 2/3 (or 0.6667) of the original price, which equals $66.67.

In a Three for Two Stock Split for a Company