Question

You own 100 shares of Warna Paint’s stock, which currently sells for SAR120 a share. The company is contemplating a 2-for-1 stock split. Which of the following best describes what your position will be after such a split takes place? Select one: a. You will have 200 shares of stock, and the stock will trade at or near SAR120 a share. b. You will have 200 shares of stock, and the stock will trade at or near SAR60 a share. c. You will have 100 shares of stock, and the stock will trade at or near SAR60 a share. d. You will have 50 shares of stock, and the stock will trade at or near SAR120 a share.

Answer 1

After the stock split, the number of shares outstanding will double as the company is going for a 2 for 1 stock split. So, if the number of shares outstanding is 100, after the split , the number of shares outstanding will be 200 shares.

As the value of market capitalization is same, the share price should be $60 after the split is announced.

Number of shares * share price = market cpaitalization

200 * share price = 100* SAR 120

So , share price is = SAR 12000/ 200

So, share price is = SAR 60

So, the correct option is option B.