SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 54: Answer and Explanation

Question: 54

Which of the following does NOT occur when a reverse stock split is approved by the board of directors?

• A. The new shares may have twice the par value of the old shares.
• B. The firm buys shares from shareholders to reduce the quantity of shares outstanding.
• C. One new share is exchanged for two old shares.
• D. The new shares will begin trading at twice the price of the old shares.

Correct Answer: B

Explanation:

B: Choice B is correct because the firm does not buy shares from shareholders to accomplish a reverse stock split. Choices A, C, and D are incorrect because they do occur when a reverse stock split is approved by the board of directors.