Stock split effect—what happens to number of shares and price per share?

• A. The number of shares increases and price per share decreases, with total value remaining the same.
• B. The overall market capitalization changes with stock splits.
• C. Dividends increase after a split.
• D. The price stays the same while the number of shares decreases.

Answer: (A)

Stock splits distribute the company’s equity across more shares, so the number of shares goes up and the price per share goes down by the same ratio. The total value of your holding, and the company’s overall market capitalization, stays the same immediately after the split (ignoring any market moves). For example, a 2-for-1 split doubles the number of shares you own and halves the price per share, leaving your total value unchanged. This is why the description of increasing shares and decreasing price per share, with total value remaining the same, is the best fit.

Other ideas don’t fit because a split doesn’t change market capitalization on its own, dividends don’t automatically increase just because a split happened, and a split doesn’t leave the price unchanged while reducing the number of shares (that would be a reverse split).