Georgia Assessments for the Certification of Educators GACE Practice Test

A shareholder owns 200 shares of stock XYZ at $58 each. If there is a 2-1 stock split, how many shares will that shareholder have, and what will the new share price be?

1. 100 shares at $116 per share

2. 200 shares at $116 per share

3. 400 shares at $29 per share

4. 400 shares at $58 per share

The correct answer is: 100 shares at $116 per share

The correct outcome of a 2-for-1 stock split is that the shareholder will have twice the number of shares, and the price per share will be halved. Initially, the shareholder owns 200 shares at $58 each. After the stock split, the number of shares increases to 400. The total value of the investment remains unchanged, and as a result, the share price decreases to $29, which is half of the original $58. Thus, after a 2-for-1 split, the shareholder will own 400 shares, and each of those shares will now be priced at $29. This reflects the standard behavior of stock splits, where the total market value of the shares remains consistent, while the number of shares increases and the price decreases inversely. The other options do not correctly align with the mechanics of a stock split. For instance, some suggest incorrect new prices and share amounts, failing to reflect the simple principle that the quantity doubles and the price halves.