Price of a Stock
Oct 17, 2007 - Posted by Kevin Hsu
The reason companies split stocks is to make their stocks appear inexpensive. If you own two shares of ABC and the company decides to split the stocks, you now own four shares of ABC. Each share costs you $5.00. Whether you have two shares before the split or four shares after the split, the total value of your stocks remain the same ($10). Splitting a stock increases the number of outstanding shares, which increases the liquidity of the stock. Ultimately this results in the bid/ask spread being different… yada..yada…These are the main reasons for a stock split.