Answer:
I. In a 2-for-1 stock split: I have 80 shares of stock each worth $225
II. In a 4-for-1 stock split: I have 160 shares of stock each worth $112.50
Step-by-step explanation:
Stock splits is used by publicly trading companies to control the investments of investors; it is used to determine per-share stock price of investors. In a stock split, a company makes public its intention of distributing certain number of new shares for every existing share.
Number of shares (before the split) = 40, Share price (before the split) = $450
I. Let's assume the company does a 2-for-1 stock split, we have:
a) Number of shares (after the split) = Number of shares (before the split) * split ratio
In a 2-for-1 stock split, the ratio is 2:1 = 2
Number of shares (after the split) = 40 * 2 = 80
That means that after the stock split, I now have 80 shares (twice the initial number)
b) In a 2-for-1 stock split, the share price of stock reduces by the ratio of 2
Share price (after the split) = Share price (before the split) ÷ Split ratio
Share price (after the split) = $ (450 ÷ 2) = $225
Share price (after the split) = $225
The value of the stock (after the split) is $225 (half the initial worth)
II. Let's assume the company does a 4-for-1 stock split, we have:
a) Number of shares (after the split) = Number of shares (before the split) * split ratio
In a 4-for-1 stock split, the ratio is 4:1 = 4
Number of shares (after the split) = 40 * 4 = 160
That means that after the stock split, I now have 160 shares (four times the initial number)
b) In a 4-for-1 stock split, the share price of stock reduces by the ratio of 4
Share price (after the split) = Share price (before the split) ÷ Split ratio
Share price (after the split) = $ (450 ÷ 4) = $112.50
Share price (after the split) = $112.50
The value of the stock (after the split) is $112.50 (a fourth of the initial worth)
In the real sense, the only thing that changed is the per-share stock price of the investors