Question

jim owns stock in gamma vision inc. That company announces that it will split its stock with three new shares per two old shares. Jim currently owns 400 shares valued at $25 each. How many shares will he have after the split and how much will each be worth?
a.) 600 shares worth $37.50 each
b.) 400 shares worth $16.67 each
c.) 600 shares worth $16.67 each
d.) 200 shares worth $37.50 each

Answer 1

Option C: 600 shares worth $16.67 each is the correct answer

Step-by-step explanation:

In the share market, a 2 to 3 split(mentioned in the question) means that the share holders get one half of already owned shares and the price of each share declines by one-third.

Given

Jim's shares = s = 400

Price per share =p =  $25

First of all we will calculate the new shares:

Let sn be the number of new shares

As explained above

$sn = s + \frac{s}{2}\\sn = 400 + \frac{400}{2}\\sn = 400+200\\sn = 600$

Now the news price will be:

$New\ price = Old\ price - \frac{Old\ price}{3}\\= 25 - \frac{25}{3}\\= 25 - 8.33\\= 16.67$

The new number of shares will be 600 and the price of each share will be: $16.67

Hence,

Option C: 600 shares worth $16.67 each is the correct answer

Keywords: Shares, 2-to-3 split

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