SIE Exam Question 111: Answer and Explanation

Question: 111

What is the name of the strategy where a company reduces the number of shares outstanding by exchanging a fractional amount of a new share for each outstanding share of stock?

• A. Stock dividend
• B. Stock split
• C. Reverse stock split
• D. Reverse stock dividend

Correct Answer: C

Explanation:

A reverse stock split is the strategy where a company reduces the number of shares outstanding by exchanging a fractional amount of a new share for each outstanding share of stock. A stock split is a maneuver used by a company to increase the number of shares outstanding by exchanging a specified number of new shares of stock for each outstanding share. A stock dividend is a distribution made by a company to its shareholders of additional shares of stock. There is no such thing as a reverse stock dividend.