Final answer:
Stock dividends distribute company profits to shareholders and can be in cash or additional shares, while stock splits increase the number of shares to decrease the price per share. Both options increase the total number of shares (option b) but affect share price differently, generally making stock ownership more appealing.
Step-by-step explanation:
The correct answer to the question regarding stock dividends and stock splits is that both will increase the total number of shares. When a company pays a dividend, it distributes a portion of its profits to shareholders, usually as cash or as additional shares of stock. On the other hand, a stock split is when a company increases its number of outstanding shares by issuing more shares to current shareholders. Both actions are designed to make owning shares more attractive and accessible but affect share price differently.
In the case of a stock split, the share price will typically decrease proportionally to the split because the total value of the company has not changed. However, in the long term, if the stock split encourages more trading and a broader shareholder base, the stock price might increase due to amplified demand. Dividends do not necessarily reduce the share price; instead, they provide a direct return on investment to shareholders. Sometimes, after dividends are paid, the share price may drop by the amount of the dividend as the company's assets decrease by the amount distributed, but this is a short-term effect.