SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 57: Answer and Explanation

Question: 57

Which of the following is true regarding a reverse stock split?

• A. The market price for a share of stock is reduced.
• B. The cost basis for a share of stock is adjusted.
• C. The quantity of treasury stock is increased.
• D. This is required in the event of a merger.

Correct Answer: B

Explanation:

B: Choice B is correct because the par value for the stock is increased, so the cost basis is spread among a smaller number of shares. Choice A is incorrect because the market price will be increased. Choice C is incorrect because the quantity of treasury shares would decrease. Choice D is incorrect because a merger would not typically require a reverse stock split.