OK ..... We all recently heard that Apple Inc. had a 7 to 1 split. Isn't that great news? Do you even know what this means. I am going to try and make it simple.
Simple Math
Splitting a stock means you have more shares, but with stock value equaling the same before the split. It's like changing a $5.00 for 5 $1.00's. Instead of 1 bill, you now have 5 bills, but the value is still the same.
More Simple Math
Before the split :
- You own 200 shares of AAPL @ $600/share = $120,000 value
After the split:
- You own 1400 shares of AAPL @ $85.714 = $120,000 value
Even though you look and see that your value hasn't really changed. Now you have more shares of AAPL stock that will hopefully reach $600.00/share.
- You own 1400 shares of AAPL @ $600.0/share = $840,000 value
The Why
What purpose did Apple hope to achieve by doing this?
- With the stock price lower now, investors can buy more, not just 10 shares, but 20.
- With the stock price below $100.00/share, it can now be listed in the Dow Jones Industrial Average as one of the world's largest companies; there is a lot of prestige that follows this.
Hopefully, I've Made It Easy To Understand ..... Trade Well!
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