What does a 2-for-1 stock split indicate?

What does a 2-for-1 stock split indicate?

• A. Shareholders receive double the shares at half the previous value
• B. Shareholders receive the same number of shares at double the previous value
• C. Shares are consolidated into fewer shares with higher value
• D. Shares become worthless after the split

Answer: (A)

A 2-for-1 stock split means that for every share a shareholder owns, they will receive an additional share, effectively doubling the total number of shares. However, because the total value of the company remains the same, the price per share is halved. This results in shareholders receiving double the number of shares at half the previous share price, preserving the overall value of their holdings but increasing the number of shares they own. This type of corporate action is typically intended to make shares more affordable and attractive to a wider range of investors, while also increasing liquidity in the market. It is a common practice among companies seeking to adjust their share price without affecting the overall value of the equity.

A 2-for-1 stock split means that for every share a shareholder owns, they will receive an additional share, effectively doubling the total number of shares. However, because the total value of the company remains the same, the price per share is halved. This results in shareholders receiving double the number of shares at half the previous share price, preserving the overall value of their holdings but increasing the number of shares they own.

This type of corporate action is typically intended to make shares more affordable and attractive to a wider range of investors, while also increasing liquidity in the market. It is a common practice among companies seeking to adjust their share price without affecting the overall value of the equity.