SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 52: Answer and Explanation

Question: 52

Which of the following is typically approved by a board of directors when the trading price is so high that it inhibits trading?

• A. Rights offer
• B. Reverse stock split
• C. Tender offer
• D. Stock split

Correct Answer: D

Explanation:

D: Choice D is correct because a stock split reduces the market price and is intended to encourage investors to purchase shares. Choice A is incorrect because a rights offer is generally connected to a new stock offering. Choice B is incorrect because a reverse stock split usually occurs when the market price is extremely low. Choice C is incorrect because a tender offer is made by an outside firm who wishes to purchase shares of the company.