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SIE practice questionmediumStock Splits

How does a reverse stock split affect a shareholder’s total investment value?

  1. AThe number of shares decreases, but total value remains the same.✓ Correct answer
  2. BThe total investment value decreases.
  3. CThe number of shares and value both increase.
  4. DOnly the share price decreases.
Explanation

Why A — The number of shares decreases, but total value remains the same.

Reverse splits reduce shares and raise price so total value is unchanged. The other answers do not reflect a reverse split’s math.

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