Series 7 practice questionmediumEquity Securities — Stock Dividends
An investor owns 400 shares of stock at a cost basis of $50 per share. The company declares a 10% stock dividend. After the dividend, what is the investor's adjusted cost basis per share?
- A$45.45✓ Correct answer
- B$50.00
- C$55.00
- D$40.00
Explanation
Why A — $45.45
A 10% stock dividend gives the investor 40 additional shares (400 x 10%), bringing the total to 440 shares. The total cost basis remains $20,000 (400 x $50). The new cost basis per share is $20,000 / 440 = $45.45. Stock dividends are not taxable events; they simply spread the original cost basis across more shares.
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