Give step-by-step solution with explanation and final answer: An investor owns 8,000 shares of a firm's common stock, which are currently trading for $56.00 per share. The company has announced a 2 - for-1 stock split. After the split, how many shares will the investor own, and how much will the shares be worth?
Question:
Give step-by-step solution with explanation and final answer: An investor owns 8,000 shares of a firm's common stock, which are currently trading for $56.00 per share. The company has announced a 2 - for-1 stock split. After the split, how many shares will the investor own, and how much will the shares be worth?
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Asked by: YASHWANT SHARMA
Created at: 2025-05-26 22:58:48
Asked by: YASHWANT SHARMA
Created at: 2025-05-26 22:58:48
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Let's break down the problem step by step:
## **Step 1: Understanding a 2-for-1 Stock Split**
- A **2-for-1 stock split** means that for every 1 share currently owned, the investor will receive 2 shares after the split.
- However, the **total value of the holdings does not change** immediately after the split; only the number of shares and the price per share change.
---
## **Step 2: Calculating the New Number of Shares**
- **Original number of shares:** 8,000
- **Split ratio:** 2-for-1
**New number of shares = Original number of shares × 2**
\[
\text{New number of shares} = 8,000 \times 2 = 16,000
\]
---
## **Step 3: Calculating the New Price Per Share**
- **Original price per share:** $56.00
In a 2-for-1 split, the price per share will be halved (since the value is now spread over twice as many shares):
\[
\text{New price per share} = \frac{\$56.00}{2} = \$28.00
\]
---
## **Step 4: Calculating the Total Value After the Split**
- **Total value before the split:**
\( 8,000 \) shares × $56 = **$448,000**
- **Total value after the split:**
\( 16,000 \) shares × $28 = **$448,000**
So, the **total value remains the same**.
---
## **Final Answers**
- **Shares after split:** **16,000**
- **Price per share after split:** **$28.00**
- **Total value of holdings:** **$448,000**
---
### **Summary Table**
| Before Split | After Split |
|----------------|---------------|
| 8,000 shares | 16,000 shares |
| $56/share | $28/share |
| $448,000 value | $448,000 value|
---
**Explanation:**
A 2-for-1 stock split doubles the number of shares and halves the price per share, but the total value of the investment remains unchanged.
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