Effects of a Stock Split
The common stock of Fido Corporation was trading at $45 per share on October 15, 2014. A year later, on October 15, 2015, it was trading at $80 per share. On this date, Fido’s board of directors decided to split the company’s common stock.
a. If the company decides on a 2-for-1 split, at what price would you expect the stock to trade immediately after the split goes into effect?
b. If the company decides on a 4-for-1 split, at what price would you expect the stock to trade immediately after the split goes into effect?
c. Why do you think Fido’s board of directors decided to split the company’s stock?
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