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: For example, in a 2-for-1 stock split, each shareholder receives 2 new shares for every 1 share they previously owned.

2. Decrease in share price: The price per share is adjusted proportionally downward. In a 2-for-1 split, the share price would be approximately halved.

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

4. No change in ownership percentage: Each shareholder maintains the same proportional ownership in the company.

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 Option A is incorrect:

• A stock split does NOT decrease the number of shares; it increases them
• A reverse stock split would decrease shares and increase price

Why Option C is incorrect:

• While the number of shares increases, the price does NOT increase; it decreases proportionally
• If both increased, the market capitalization would increase, which doesn't happen in a stock split

Example:

• Before 2-for-1 split: 1,000 shares at $100 each = $100,000 market cap
• After 2-for-1 split: 2,000 shares at $50 each = $100,000 market cap

The company's value remains the same, just divided into more pieces at a lower price per piece.