What impact does a stock split have on share price?

A stock split occurs when a company decides to increase the number of its outstanding shares by issuing more shares to current shareholders. For example, in a 2-for-1 split, shareholders will receive an additional share for every share they own, effectively doubling the number of shares.

While the total number of shares increases, the price per share adjusts downward to reflect this change. In essence, the overall market capitalization of the company remains unchanged, but the individual share price decreases proportionately to the increase in shares. This makes shares more affordable and can improve liquidity in the market.

Thus, the correct answer demonstrates that a stock split results in a decrease in share price while simultaneously increasing the total number of outstanding shares. This mechanism does not alter the total value of an investor's holdings but adjusts the share price to a more favorable level for potential investors.