Understanding Trading, Customer Accounts and Prohibited ActivitiesDifficulty 3/5
A customer holds 100 shares with a cost basis of $60 per share when a two-for-one split is completed. What is the position afterwards?
- A100 shares with a cost basis of $30 per share, the total having halved
- B50 shares with a cost basis of $120 per share, the total unchanged
- C200 shares with a cost basis of $30 per share, the total unchanged
- D200 shares with a cost basis of $60 per share, the total having doubled
Show answer and rationale
Correct: C. A split changes the per-share figures and leaves total value alone. Shares double, price and per-share cost basis halve, and the customer is neither richer nor poorer for it.
- D — The cost basis per share must adjust downward, or the split would create value from nothing.
- A — The share count doubles in a two-for-one split; it does not stay the same.
- B — That describes a one-for-two reverse split, which is the opposite corporate action.