SIE (Securities Industry Essentials) Practice Exam

After a 1-3 reverse stock split, what is the total value of your position in ABC Company if you owned 300 shares before the split and the stock was worth $5?

1. $1,500

2. $100

3. $450

4. $900

The correct answer is: $1,500

To determine the total value of your position after a 1-3 reverse stock split, it is important to understand how reverse stock splits work. In a 1-3 reverse stock split, every three shares you own are consolidated into one share. In this scenario, you initially have 300 shares of ABC Company. After the 1-3 reverse stock split, you would divide the number of shares by 3: 300 shares / 3 = 100 shares Following the split, the value of your investment does not decrease just because the number of shares has decreased. Instead, the share price is adjusted to reflect the split. Since the initial stock price was $5, after a reverse split, the new share price would be calculated by multiplying the old share price by the reverse split ratio: Old Price x (1/3) = New Price $5 x 3 = $15 After the split, you now own 100 shares at a new price of $15 each. To find the total value of your position, you multiply the number of shares by the new price per share: 100 shares x $15 = $1,500 This total value remains consistent even after the reverse stock split. Hence, the