What is a Stock Split, and Will It Affect the Shares I Own?
A stock split is an action taken by a company to divide its existing shares into multiple new shares at a lower price per share, without changing the total value of the investment. For example, in a 2-for-1 stock split, each share you own will be split into two shares, but the total value of your investment remains the same.
The effects of a stock split on your investment include:
- Increase in the Number of Shares: You will own more shares after the stock split. For instance, if you had 100 shares before the split, after a 2-for-1 split, you will have 200 shares.
- Decrease in Price per Share: The price per share will decrease according to the split ratio. For example, if the price per share was $100 before the split, after a 2-for-1 split, the price per share will be $50.
- Total Investment Value Remains the Same**: Even though the number of shares increases and the price per share decreases, the total value of your investment stays the same. In the example above, the total investment before and after the split remains $10,000.
Stock splits are often done to increase the liquidity of the stock and make it more affordable for investors.
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