Question

Mr. Tate owned 100 shares at $50 per share the company declared a 2 for 1 split, which of the following is true?

A) He now has more shares at a lower cost basis.
B) He now has more shares at a higher cost basis.
C) He now has fewer shares at a lower cost basis.
D) He now has fewer shares at a higher cost basis.

Answer 1

After a 2 for 1 stock split, Mr. Tate will have more shares at a lower cost basis.

Step-by-step explanation:

When a company declares a 2 for 1 stock split, it means that for every share owned, the shareholder will receive an additional two shares. In this case, Mr. Tate owned 100 shares. After the split, he will now have 100 shares x 2 = 200 shares. The cost basis per share will be adjusted accordingly. Since the number of shares has increased, but the total cost remains the same, the cost basis per share will be lowered. Therefore, the correct answer is: A) He now has more shares at a lower cost basis.