When a firm announces a two-for-one stock split (in the absence of other new information), investors should expect that:
A)earnings per share will fall by half but stock price will remain the same.
B)stock price will fall by half but earnings per share will remain the same.
C)both earnings per share and stock price will remain the same.
D)both earnings per share and stock price will fall by half.

Question

Quizplus · Accepted Answer

In a two-for-one stock split, both the earnings per share and the stock price will effectively fall by half. This is because the number of shares doubles, diluting the value of each share, including its share of the earnings. However, the total value of the company and the total earnings do not change; they are just distributed over a larger number of shares.

When a Firm Announces a Two-For-One Stock Split (In the Absence