Explanation

A stock split is a corporate action where a company divides its existing shares into multiple shares. The key characteristics of a stock split are:

1. Increase in number of shares: In a typical stock split (e.g., 2-for-1 split), each existing share is divided into multiple shares. For example, in a 2-for-1 split, each shareholder receives 2 shares for every 1 share they previously owned.

2. Decrease in share price: The share price is proportionally reduced to maintain the same total market capitalization. In a 2-for-1 split, the share price would be approximately halved.

3. No change in total market value: The total market value of the company remains unchanged. The increase in number of shares is exactly offset by the decrease in share price.

4. No change in ownership percentage: Each shareholder's proportional ownership in the company remains the same.

Why option B is correct:

• A stock split increases the number of shares outstanding
• The share price decreases proportionally to maintain the same market capitalization
• This makes shares more affordable and increases liquidity

Why other options are incorrect:

• Option A: Describes a reverse stock split, not a regular stock split
• Option C: Would increase total market value, which doesn't happen in a stock split

Example: If a company with 1 million shares at $100 per share (market cap = $100 million) does a 2-for-1 split:

• Number of shares becomes 2 million
• Share price becomes approximately $50
• Market cap remains $100 million (2 million × $50)