Question

Jim owns stock in Gamma Vision Inc. That company announces that it will split its stock with three new shares per two old shares. Jim currently owns 400 shares valued at $25 each. How many shares will he have after the split and how much will each be worth? Select the best answer from the choices provided. A. 600 shares worth $37.50 each B. 400 shares worth $16.67 each C. 600 shares worth $16.67 each D. 200 shares worth $37.50 each

Answer 1

Answer:

The correct answer is C. 600 shares worth $16.67 each

Step-by-step explanation:

1. Let's review the information provided to us to answer the question correctly:

Number of old shares Jim owns in Gamma Vision Inc = 400

Value of each share = $ 25

Ratio of new shares : old shares after the split = 3:2

2. How many shares will he have after the split and how much will each be worth? Select the best answer from the choices provided.

A. Let's use the ratio provided to calculate the number of new shares Jim will own, this way:

New shares = 400 * 3/2 = 1,200/2 = 600

B. Let's calculate the price of the new share, this way:

The total value of the new shares should be the same than the total value of the old shares, then:

400 * 25 = 600 * x

10,000 = 600x

x = 10,000/600 = 16.67

The correct answer is C. 600 shares worth $16.67 each