Final answer:
If the board of directors approves a two-for-one stock split, an investor who owns 125 shares before the split will own 250 shares after the split.
Step-by-step explanation:
If the board of directors approves a two-for-one stock split, each shareholder's number of shares doubles. This means that an investor who owns 125 shares before the split will own 250 shares after the split. The number of shares doubles because each existing share is split into two new shares, resulting in a higher number of shares for each shareholder.
A stock split happens when a company increases the number of its shares to boost the stock's liquidity. Although the number of shares outstanding increases by a specific multiple, the total dollar value of all shares outstanding remains the same because a split does not fundamentally change the company's value.
The most common split ratios are 2-for-1 or 3-for-1 (sometimes denoted as 2:1 or 3:1). This means for every share held before the split, each stockholder will have two or three shares, respectively, after the split.