SIE Exam Question 344: Answer and Explanation

Question: 344

A company "reverse splits" its stock on a 1-for-10 basis. If an investor holds 800 shares before the event, what will be the impact of the split, if any, on the total value of the investors' shares?

• A. Total value will decline by 90%
• B. Total value will decline by 10%
• C. Total value will not change
• D. Total value will increase by 10 times

Correct Answer: C

Explanation:

C - Stock splits and reverse splits do not change the total value of investors' holdings. For example, if the investor owned 800 shares at $1 per share before the 1-for-10 reverse split, he/she will own 80 shares at about $10 per share after the event.