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

A listed company announces a stock split reducing the face value of its equity shares from Rs 10 to Rs 2 each. Other things being equal, what happens to the number of shares held by an investor who owns 100 shares before the split?

The investor will hold 500 shares. A split from Rs 10 to Rs 2 face value creates five shares for every one held, so 100 shares become 500, while the total market value of the holding remains broadly unchanged.

  1. AThe holding becomes 500 sharesCorrect
  2. BThe holding becomes 20 shares
  3. CThe holding stays at 100 shares
  4. DThe holding becomes 50 shares

Explanation

A split from Rs 10 to Rs 2 divides each share into 10/2 = 5 shares. So 100 shares become 500 shares. The total value is unchanged, and the share price falls to about one-fifth. Option 20 wrongly inverts the ratio.

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