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Friday, July 22, 2011

How to Trade Stock Splits

A stock split increases the number of shares outstanding, which decreases the market price per share such that the before and after market capitalization of the company remains the same.

Example:
JKL Company splits its stock 2-for-1. Peter holds 1,000 shares before the split and each share priced at $20. So, Peter has $20,000 worth of stocks (1,000 * $20).
After the split, Peter will own 2,000

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