50 Shares Each
Q I see Chipotle is splitting its stock 50-for-1. What does that mean? Should I buy its stock now? — G.S., Groton, Connecticut
A Stock splits are often 2-for-1 or 3-for-1 exchanges, so the 50-for-1 split is unusual.
Here’s how this one will work: Chipotle stock was recently trading around $2,900 per share. Imagine that you own 10 shares, worth around $29,000. When the stock splits, likely in June, you’ll find 500 shares in your account (that’s 10 times 50), and the stock price will have been reduced proportionately. If it’s at $2,900 when it splits, the new price will be around $58 per share (that’s $2,900 divided by 50). Now multiply your 500 shares by $58 and you’ll see that the total value is ... still $29,000. Like other stock splits, it’s a non-event for investors — except that the split makes individual shares more affordable to the masses.
Whether you should buy Chipotle now is another issue. You’ll want to research the company’s health, competitive position and growth prospects and determine whether the stock price seems undervalued (good) or overvalued (not good).
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Q What’s negative amortization? — T.L., Charleston, South Carolina
A When you have a loan (such as a mortgage) and make payments on it, you’re typically paying interest and part of the principal, decreasing your amount owed with each payment. That’s amortization.
In some cases, though, your payment may not cover all the interest due — so the unpaid interest is added to your principal, increasing your loan balance. That’s negative amortization, and if it goes on for a while, you can end up owing more than the home is worth, which can make it hard to sell.
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