In 2016 Carolyn purchased two shares of common stock in a te

In 2016, Carolyn purchased two shares of common stock in a technology firm. Carolyn paid $60 for one share and $70 for the next share. Later in the year, the company declared a 2 for 1 common stock split. Carolyn\'s new basis in the stock shares is:

1-The average of four shares at $32.50 a share.

2-Two shares at $60 a share and two shares at $70 a share.

3-Four shares at $130 a share.

4-Two shares at $30 a share and two shares at $35 a share.

*Please answer only you are 100% sure.

Solution

Answer :-

Given in the question that Carolyn purchased two shares of common stock in a technology firm, one share for $60 and another at $70

So, the total cash outlay is $130 for 2 shares

Since there has been a 2 for 1 common stock split later in the year, hence total shares outstanding at the year in the hands of Carolyn is 4 shares.

Therefore Carolyn has , $130/4 i.e. $32.5 a share.

The answer is 1