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Q. What is a stock split?
A stock split is a corporate action that increases a company’s share count. A stock split reduces the market price of individual shares but has no effect on the company’s total market capitalization. Companies frequently split their stock when the share price has risen significantly to lower the trading price to a more comfortable range for investors and to increase the liquidity of trading in their shares. Most investors prefer to buy 50 shares of a Rs. 1000/stock rather than 5 shares of a Rs. 10,000/stock.
The board of directors of a company can choose to split the stock in any ratio. For example, a stock split could be 2-for-1, 5-for-1, 10-for-1, and so on. A 5-for-1 stock split means that for every one share an investor currently owns, there will now be five. Divide the old share price by 5 to get the price per share after the 5-for-1 stock split.