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Question

Difficulty: MediumSettlement Dates, Trade Confirmations, and Corporate Actions

An investor holds 400400 shares of common stock currently trading at a market price of $45.00\$45.00 per share. The board of directors declares a 33-for-22 forward stock split. What will be the investor's new adjusted price per share in dollars after the split takes effect?

Answer: 30 $

Answer

The adjusted price per share following the 33-for-22 forward stock split is $30.00\$30.00.
In a 33-for-22 forward stock split, shareholders receive 33 shares for every 22 shares held, increasing the overall share count by 50%50\%. Because corporate actions do not alter the overall equity value of an investor's position, the price per share must decrease proportionally by multiplying the original price of $45.00\$45.00 by the reciprocal ratio 23\frac{2}{3}, resulting in a new price of $30.00\$30.00 per share.

Step-by-Step Solution

1
Determine the price adjustment factor for the stock split
The adjustment factor for per-share price is 23\frac{2}{3}.
A 33-for-22 forward split increases the number of shares by 1.51.5 times, requiring the per-share price to decrease proportionally by multiplying by the reciprocal 23\frac{2}{3} to maintain constant overall position value.
2
Multiply original share price by the adjustment factor
$45.00×23=$30.00\$45.00 \times \frac{2}{3} = \$30.00
Multiplying the pre-split price of $45.00\$45.00 by 23\frac{2}{3} yields the new post-split market price of $30.00\$30.00 per share.

Key Concept

Calculating post-split share price for forward stock splits
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions