NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks
Which statement about a stock split is correct?
A stock split increases the number of shares and lowers the face value per share, leaving total share capital unchanged. It raises no fresh money and does not capitalise reserves, which distinguishes it from rights and bonus issues.
- AIt increases the number of shares and reduces the face value per share, with no change in total share capitalCorrect
- BIt transfers reserves into share capital without changing face value
- CIt reduces the number of shares outstanding and raises the face value
- DIt raises fresh capital for the company from existing shareholders
Explanation
A split divides each share into more shares with a lower face value, so share capital stays the same. Capitalising reserves describes a bonus issue, and a reduction in shares with higher face value is a consolidation.
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