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NISM Certifications · NISM-Series-XV: Research Analyst · Corporate Actions

A company with a face value of ₹10 per share and 5 crore shares outstanding announces a stock split into shares of face value ₹2. A shareholder held 200 shares at a market price of ₹1,500 just before the split. Which statement is correct after the split, other things being equal?

The shareholder holds 1,000 shares and the theoretical price is ₹300. Splitting face value from ₹10 to ₹2 multiplies the share count by five and divides the price by five, leaving total holding value unchanged at ₹3,00,000.

  1. AThe shareholder holds 1,000 shares and the theoretical price is ₹300Correct
  2. BThe shareholder holds 1,000 shares and the theoretical price is ₹1,500
  3. CThe shareholder holds 200 shares and the theoretical price is ₹300
  4. DThe shareholder holds 40 shares and the theoretical price is ₹7,500

Explanation

Split factor = 10/2 = 5. Shares become 200 x 5 = 1,000, and price becomes 1,500 / 5 = ₹300. Holding value stays ₹3,00,000 in both cases. Keeping the price at ₹1,500 would wrongly increase the investor's wealth fivefold.

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