Jul
Book Value Of Stock Formula
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I’m studying for the series 7 exam and need help with Forward Stock Split?
The book Series 7 exam for dummies was written by a dummy. Not enough explanations. I understand that a stock split is when number of shares increase and the price decreases without affecting the stock price. So each investor gets additional shares and companies do that to make the prices of shares look more attractive ….
this is the formula he gave us in the book
Bob Billingham owns 1,200 shares of DEF common stock at a current market price of $90 per
share. If DEF splits its stock 3-for-1, what would Bob’s position be after the split?
1,200 shares x 3/1= 3,600 shares
now i know that the overall value cannot be changes so i multiplied 1,200 x 90 and got 108,000
but still didnt get the right answer,
what did i do wrong??
thanks very much in advance
The overall vale does not change so the individual share price goes down. in this case it is 1/3 the price before the split or $30/share. So 1200 x 90 = 108,000 or 3600 x 30 = 108,000.
if the book has a different answer, I’d say the book is wrong. I read somewhere that textbooks can have up to 80% wrong answers when they are first published. And they want how much for it? Sad, eh?
I had to figure this out several times with my Staples stock back when it was growing rapidly.
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