When a company conducts a stock split, it issues additional shares to existing shareholders. In a 5-for-4 stock split, a shareholder will own five shares for every four shares owned before the split. This increases the number of shares a shareholder owns by a certain percentage. However, the value of each shareholder’s investment remains unchanged because the stock’s market price decreases by a proportionate percentage. You can calculate these percentages to determine how many shares you will own and their new price after a stock split.
1. Divide the first number of the stock split by the second number of the stock split. In a 5-for-4 stock split, divide five by four to get 1.25.
2. Multiply the result by 100 to calculate the percentage you will use to determine the number of shares you will own after the split. Continuing with the example from the previous step, multiply 1.25 by 100 to get 125 percent.
3. Multiply the percentage by the number of shares you currently own to determine the new number of shares you will own after the split. In the example, assume you own 1,000 shares of stock. Multiply 125 percent, or 1.25, by 1,000 shares to get 1,250 shares that you will own after the split.
4. Divide the second number of the split by the first number. Multiply your result by 100 to calculate the percentage you will use to determine the new stock price after the split. In this example, divide four by five to get 0.8. Multiply 0.8 by 100 to get 80 percent.
5. Multiply this percentage by the stock price before the split to determine the stock price after the split. In this example, assume the stock price before the split was $20 per share. Multiply 80 percent, or 0.8, by $20 to get a $16 stock price after the stock split.
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