Common Stock
Company ABC announces a 20% stock dividend. If a customer holds 1,000 shares at $50.00, what is the new price and number of shares?
Stock dividend: Total value unchanged. More shares = lower price per share.
Complete Analysis & Legal Rationale
A 20% stock dividend means the shareholder receives 20% more shares: 1,000 x 1.20 = 1,200 shares. The total value stays the same ($50,000), so the new price per share is $50,000 / 1,200 = $41.67.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Shares increase, not decrease, in a stock dividend.
The number of shares increases to 1,200, not remains at 1,000.
Matches the verified teaching point in the explanation.
The price must adjust downward to maintain the same total value.
Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA Series 7 outline.