Q&A: What is a stock split?

A stock split is a decision made by a company to break up each share of stock into more shares in order to make 1 share more affordable to potential investors who want to purchase shares.

Real-life Application: XYZ Company has a stock price of $1,000 and 1 million shares outstanding. This would mean their market capitalization is $1 billion ($1,000 x 1 million). The company decides to do a 10-1 stock split, which means each share gets broken into 10 shares, making the price of each $100. Now there are 10 million shares outstanding and their market capitalization stays the same.

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