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CFA Level I · CFA Level I Exam · Sources of Equity Returns

A company announces a 2-for-1 stock split. Holding all else equal, the split most likely changes an existing shareholder's total return from price appreciation and dividends by:

The split leaves the shareholder's return unchanged. Share count doubles while price and dividend per share halve, so the value of the holding and total dividends received stay the same. Returns measured on split-adjusted data are identical to those before the split.

  1. Ahalving it, because the share price is halved
  2. Bdoubling it, because the number of shares doubles
  3. Cleaving it unchanged, because share count and per-share values adjust proportionallyCorrect

Explanation

A split doubles shares and halves price and dividend per share, so total position value and total dividends are unchanged. Returns computed on split-adjusted prices and dividends are therefore unchanged.

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