What is the effect of a stock split?

What is the effect of a stock split?

• A. Increases total number of shares, price per share is decreased
• B. Decreases total number of shares, price per share is increased
• C. Increases price per share, total number of shares unchanged
• D. No change in shares or price per share

Answer: (A)

Stock splits adjust the number of shares and their price without changing the overall value of the investment at the moment of the split. When a split happens, more shares are issued (the total number goes up) and the price per share falls by the same factor, so the total market value remains essentially the same right after the split. This means the correct effect is to increase the total number of shares while decreasing the price per share. Splits don’t create new value; they just reprice the stock to improve affordability and liquidity. The other descriptions—fewer shares with a higher price, higher price with unchanged share count, or no change at all—don’t match how splits actually work, since the share count and price move in inverse directions.

Stock splits adjust the number of shares and their price without changing the overall value of the investment at the moment of the split. When a split happens, more shares are issued (the total number goes up) and the price per share falls by the same factor, so the total market value remains essentially the same right after the split. This means the correct effect is to increase the total number of shares while decreasing the price per share. Splits don’t create new value; they just reprice the stock to improve affordability and liquidity. The other descriptions—fewer shares with a higher price, higher price with unchanged share count, or no change at all—don’t match how splits actually work, since the share count and price move in inverse directions.