Series 7 Exam Question 403: Answer and Explanation

Question: 403

An investor purchased 1,000 shares of WXY at $40. If WXY announces a 5 for 4 split, what is the investor's position after the split?

• A. 1,250 WXY at $32
• B. 1,250 WXY at $50
• C. 800 WXY at $32
• D. 800 WXY at $50

Correct Answer: A

Explanation:

A. After the split, stockholders are going to have 5 shares for every 4 that they had before. If the number of shares is going to increase, the price of the stock is going to decrease to make up for the additional shares. After the split, the investor should have the same overall market value of securities. Use the following equation to determine the number of shares and the stock price after a split: