Answer:
Not affected
Step-by-step explanation:
Given: Shortly after Samantha sold her shares, the price per share increased by [tex]\$1.60[/tex]. Another investor in the corporation, Jeffrey, owned [tex]845[/tex] shares of Graham Corporation. A [tex]3-\text{for}-5[/tex] reverse stock split was announced.
To Find: how was Jeffrey financially affected by the split.
Solution:
Number of shares Jeffrey had [tex]=845[/tex]
Let the stock value of share after Samantha sold her share [tex]=\text{x}[/tex]
Total value of Jeffrey's shares [tex]=845\text{x}[/tex]
As a [tex]3[/tex] for [tex]5[/tex] stock split was announced
Each [tex]5[/tex] share is merged into [tex]3[/tex] shares and value of share is increased in respective ratio such that
[tex]\text{total value of shares before split}=\text{Total value of share after split}[/tex]
Now,
Number of share Jeffrey had after split [tex]=\frac{3}{5}\times845[/tex]
[tex]=507[/tex]
Stock value of share after split [tex]=\frac{5}{3}\text{x}[/tex]
Total value of Jeffrey's shares [tex]=507\times\frac{5}{3}\text{x}[/tex]
[tex]=845\text{x}[/tex]
As the value of Jeffrey's stock before and after split is same therefore Jeffrey is not financially affected by the split.
