Series 79: A1.8.3.2. Cost Basis After A Stock Split

A1.8.3.2. Cost Basis After a Stock Split

A stock split occurs when a company decides to split its existing stock into more shares. A company might do a stock split after the share price has risen substantially and the company wants to reduce the price of its shares to make buying the stock more accessible to more investors. The number of shares increases and the price per share decreases, proportionally. For example, after a 2-for-1 stock split, 100 shares that were worth $100 each are now 200 shares worth $50 each. And when a company chooses to do a reverse stock split, the number of shares decreases and the price per share increases proportionally. For example, after a 1-for-2 reverse stock split, 100 shares at $100 each become 50 shares at $200 each. Reverse stock splits are less common than forward stock splits and may be motivated by the need to meet a stock exchange’s minimum share price requi