Stock splits: making expensive shares accessible

Quick check on this lesson

Answer each question and we’ll show you why the right answer is right, and why the others aren’t.

1. 1.

   In a 2-for-1 stock split, what happens to your position?

   AYour number of shares doubles, the price per share is cut in half, and your total value is unchangedBYou get half as many shares, but each is worth twice as muchCYour number of shares stays the same, and each share is now worth twice as muchDThe company sends you a cash payment equal to half the value of your shares
2. 2.

   According to the lesson, why do companies do regular (forward) stock splits?

   ATo make the share price look more affordable to small investors, improve trading liquidity, and stay below psychological barriers like $1,000 per shareBTo make a hostile takeover more difficultCTo reduce the company's tax burdenDTo raise additional capital from new investors
3. 3.

   What is a reverse stock split?

   AA regular split that gets undone if the stock price fallsBA split that only applies to insider-held sharesCThe opposite of a regular split: multiple shares combined into fewer shares (e.g., ten $1 shares into one $10 share)DA type of dividend paid in shares instead of cash
4. 4.

   Per the lesson, when do companies typically do a reverse split, and what does it usually signal?

   AWhen the company is being acquired; the signal is neutralBWhen the company is paying a special dividend; usually a positive signalCWhen the stock has fallen so low it risks being delisted from major exchanges; usually a warning signDWhen the stock has risen too high; usually a celebration
5. 5.

   According to the warning callout, how should a stock split affect your investment thesis?

   AWait until after the split, then re-evaluate everything from scratchBSell immediately: splits often precede bad newsCBuy more shares before the split: splits usually cause prices to riseDDon't change your thesis: splits are cosmetic and don't make the company more valuable