Apple’s stock split: Why 7 to 1?


Philip Elmer-DeWitt is a senior editor at Fortune.

FORTUNE -- Apple's (aapl) announcement Wednesday of its first stock split in more than nine years set off a round of fresh speculation about the company's possible entry into the Dow Jones Industrial Average.

That's something a stock that trades in a $400-to-$700-per-share range has as much chance of doing as a camel has of going through the eye of a needle. This has been pretty thoroughly hashed out, I'm told, on CNBC.

But that still doesn't solve the puzzle reader SoCalMe put to this group on Wednesday.

"Does anyone know how the split number might have been selected?"

Good question, given that Apple's previous three splits (May 15, 1987, June 21, 2000 and Feb. 18, 2005) were all 2-for-1.

Two readers (Anne and plcm123) offered the same explanation at roughly the same time.

As Anne put it:

"It would make the math very easy, for most of us. Apple hit all time high at around $700, so 7 to 1 split would make $100 as the new all time high number, easy to remember and to calculate how far AAPL has dropped from the all time high (for now) and later (hopefully) how much higher AAPL has gone up against the old all time high. For this reason, I like the 7 to 1 split very much. It is better than a 5 to 1 or 10 to 1 split, math wise."

Sounds good to me. $100 per share is the kind of nice round number Steve Jobs always preferred.

As plcm123 put it: "Apple loves simplicity."

Apple has posted an FAQ on the split. The choice of a 7:1 ratio is not addressed.

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