Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesEasy
A client owns 100 shares of ABC stock at $75 per share. The company declares a 3-for-1 stock split. What will the client's position be immediately after the split?
- A100 shares at $25 per share
- B300 shares at $25 per share
- C300 shares at $75 per share
- D100 shares at $225 per share
Show answer & explanationAnswer & explanation
Correct answer: B. 300 shares at $25 per share
In a 3-for-1 stock split, the number of shares triples, and the price per share is divided by three. So, 100 shares * 3 = 300 shares, and $75 / 3 = $25 per share. The total value of the investment remains the same (100 * $75 = $7,500; 300 * $25 = $7,500).
Why the other options are wrong
- A. Incorrect share count; only the price was adjusted.
- C. Incorrect price adjustment; the price would decrease.
- D. Incorrect share count and price adjustment; this would imply a reverse split for price and no change in shares.
Stock Split
An action by a company that increases the number of its outstanding shares by dividing each share into multiple shares.
- Total market value of shares remains the same.
- Share price decreases proportionally.
- Often done to make shares more affordable and liquid.
Memory trick: Split means 'More Pieces, Smaller Price'.