SIE Exam Question 357: Answer and Explanation

Question: 357

An investor has 100 shares of XYZ stock at $90 per share. After a 3-for-1 split, the investor can expect to own

• A. 300 shares at $30 per share.
• B. 300 shares at $90 per share.
• C. 100 shares at $90 per share.
• D. 100 shares at $30 per share.

Correct Answer: A

Explanation:

A - A stock split doesn't affect the total value of stock owned. In this example, the shares are worth $9,000 before and after the split. But three times as many shares are owned. To calculate the new number of shares, multiply the shares by the first number of the split and divide by the second number of the split: 100 shares x 3 / 1 = 300 shares. Because the $9,000 is now divided among 300 shares, the new stock price will be $30 per share.