Series 7 practice questionmediumEquity Securities — Reverse Stock Split
A company trading at $2 per share announces a 1-for-10 reverse stock split. An investor who owns 1,000 shares will now hold:
- A100 shares at $20 each✓ Correct answer
- B10,000 shares at $0.20 each
- C1,000 shares at $20 each
- D100 shares at $2 each
Explanation
Why A — 100 shares at $20 each
In a 1-for-10 reverse split, every 10 old shares become 1 new share, and the price per share increases by a factor of 10. The investor goes from 1,000 shares at $2 to 100 shares at $20. Reverse splits are often used to increase a stock's price to meet exchange listing requirements.
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