How the Tesla 5 to 1 stock split works.
In: Economics
For an ELI5 explanation, imagine you have a $5 bill, and you swap it for five $1 bills. Now you have more pieces of paper, but each is worth less.
The amount of candy that either can buy the next day or a year later will vary from today. But at the instant of the swap, they can each buy the same amount of candy.
At first you have one Tesla Stock that is currently worth 1300$.
After the August 27 you will have 5 Stocks that are combined worth 1300$.
So after that one Stock is worth 260$.
Tesla is mainly doing that, because the burden of entry for buying a single Stock is extremely high if it costs 1300$ but 260$ is much more manageable and that way they have more potential investors.
Especially on sites like Robinhood this split will boost the amount of people that are willing to buy a Tesla stock.
Well, if you hold one share of stock, it now becomes five. This brings down the price of the shares. Say you hold one share for a stock that is priced at $100. You now have five shares priced at $20. This makes the stock more affordable to new investors.
It’s actually a 1 to 5 stock split.
If you have one stock you now have 5. If you have 2 stock you have 10.
Typically this also means that the price of each individual stock also falls by a factor of 5. So your total net worth in Tesla doesn’t change.
For every 1 share of stock one currently owns, they end up with 5 shares. Each is worth 1/5 what the previous shares were worth. Total investment is worth the same, just cut into smaller slices.
Latest Answers