Question

1. Lea owns 800 shares of ABC, Incorporated. On April 6 the corporation instituted a 5-for-2 stock

split. Before the split, each share was worth $42. 60. How many shares did Lea hold after the

split? What was the post-split price per share?

Answer 1

$17.04

Explanation:

After a stock split, the number of shares a shareholder owns is increased, while the value of each share is decreased. In this case, Lea's shares were increased by a factor of 5/2 = 2.5 times. Therefore, Lea's number of shares after the split was 800 * 2.5 = 2000 shares.

The value of each share after the split is decreased by a factor of 2/5 = 0.4 times. Therefore, the post-split price per share was $42.60 * 0.4 = $17.04.

Therefore, after the stock split, Lea had 2000 shares worth $17.04 each.