Securities Industry Essentials (SIE) ExamUnderstanding Products and Their RisksMedium
An investor owns 100 shares of XYZ Corp. stock. XYZ Corp. declares a 2-for-1 stock split. Immediately after the split, what will the investor own?
- A50 shares, each worth twice as much.
- B100 shares, with a cash distribution equal to the split value.
- C200 shares, each worth half as much.
- D100 shares, but with a different par value.
Show answer & explanationAnswer & explanation
Correct answer: C. 200 shares, each worth half as much.
In a 2-for-1 stock split, the number of shares an investor owns doubles, and the price per share is halved. The total value of the investment remains the same.
Why the other options are wrong
- A. This describes a reverse stock split, not a regular split.
- B. Stock splits are not cash distributions; they are accounting adjustments to shares and price.
- D. Stock splits change the number of shares and price, not typically the par value directly, and the number of shares changes.
Stock Split
An action by a company that increases the number of its outstanding shares by dividing each existing share into multiple shares.
- Increases the number of shares, decreases the price per share proportionally.
- Total market value of the investment remains unchanged.
- Makes shares more affordable, increasing liquidity.
- Often a sign of a successful company.
Memory trick: Splits Slice Shares, Same Sum.