If you have 40 shares of stock each worth $450 and then the stock splits. How many shares of stock do you have and what is their value

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

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

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