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Most Recent Articles
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- What Happens When Stocks Split
Stock splitting is one of the best things that can happen to an investor. When a stock splits, then the stockholders would receive twice as many shares as before. Though the volume of the shares would almost double, the value of each share would be reduced. Supposing a company splits its stock two-for-one, i.e. it issues one new share on each existing one, then the value of each share would be reduced to half. Thus the number of shares would become twice as before, but the total value would remain unchanged. It’s something like getting two five-dollar bills in place of a single ten-dollar bill. The value would remain the same, but the bulk of paper would become twofold.
Sometimes an investor may feel a stock to be quite beyond his/her reach due to the high price per share of the stock. But when the stock splits, then the reduced value becomes much more affordable to the smaller investors. A $100 share could seem to be too much to invest in, but if it is split two-way, then the $50 stock would seem to be more affordable. This is the reason why companies go ahead and split their stocks. It plays favorably on the psychologies of their investors and they build on more capital.
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