Question

Difficulty: MediumSettlement Dates, Trade Confirmations, and Corporate Actions

An investor owns $600$ shares of ABC Corporation common stock, which is currently trading at a market price of $\$45.00$ per share. The corporation announces and executes a $5$ -for- $4$ forward stock split. What is the adjusted price per share of ABC Corporation common stock immediately following the split?

Answer: 36 USD

Answer

The post-split price per share is

\$36.00

.

In a 5-for-4 forward split, the total share count increases by

125\%

, or a factor of

1.25

(

5 / 4 = 1.25

). To maintain the identical total market value of the position (

\$27,000

), the price per share must decrease proportionally by dividing the original price of

\$45.00

by

1.25

, resulting in

\$36.00

per share.

Step-by-Step Solution

1

Calculate the stock split factor

5 / 4 = 1.25

A 5-for-4 forward stock split means the investor receives 5 shares for every 4 shares previously held, increasing the share quantity by a ratio of 1.25.

2

Calculate the post-split share price

45.00 / 1.25 =

36.00

Corporate stock splits change share quantity and per-share market value proportionally so that total position value remains unchanged (

600 \times \$45.00 = 750 \times \$36.00 = \$27,000

).

Key Concept

Forward Stock Split Price Adjustment

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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions