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Mr. Davis bought 100 QRS at $60 per share. The company declared a 3:2 split. What is Mr. Davis' new cost basis and how many shares does he have now?

A.cost basis of $40 per share
B.cost basis of $90 per share
C.a total of 150 shares
D.a total of 67 shares

User Hobo
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1 Answer

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Final answer:

When a company declares a stock split, the number of shares owned by each investor increases, but the price per share decreases proportionally. Mr. Davis initially bought 100 shares at $60 per share and received 50 additional shares after the 3:2 split. His new cost basis is $40 per share, and he now has a total of 150 shares.

Step-by-step explanation:

When a company declares a stock split, the number of shares owned by each investor increases, but the price per share decreases proportionally. In this case, the company declared a 3:2 split, which means that for every 2 shares owned, the investor would receive an additional 1 share.

Mr. Davis initially bought 100 shares at $60 per share, so he would receive 100/2 = 50 additional shares. He would now have a total of 100 + 50 = 150 shares.

To calculate the new cost basis, we divide the initial cost by the new number of shares: $60 / 1.5 = $40 per share.

Therefore, the correct answer is A. Mr. Davis has a new cost basis of $40 per share and a total of 150 shares.

User Don Miguel
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