CMFAS CM-EIP Equities & Shares question: company carries out a 2-for-1 stock split

CMFAS CM-EIPEquities & Shares

A company carries out a 2-for-1 stock split. What happens to an existing holding?

A The share count doubles and so the total value of the holding also doubles
B The company raises new cash equal to the value of all the additional shares issued
C The share count doubles and the price roughly halves, with total value unchanged
D Each holder's percentage ownership falls as more shares are now in issue

Show the answer and explanation

Answer: C. The share count doubles and the price roughly halves, with total value unchanged

A stock split divides each share into more units, increasing the share count and reducing the per-share price proportionately; the total value of the holding and the company's market capitalisation are unchanged.

Common mistake

Believing a split adds value or raises cash; it is purely cosmetic.

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CMFAS CM-EIP Equities & Shares question: company carries out a 2-for-1 stock split

Answer: C. The share count doubles and the price roughly halves, with total value unchanged

Common mistake

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CMFAS CM-EIP Equities & Shares question: company carries out a 2-for-1 stock split

Answer: C. The share count doubles and the price roughly halves, with total value unchanged

Common mistake

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