SIE (Securities Industry Essentials) Practice Exam

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Assume a 1:4 reverse split. What is the new per share value for Christe who owns 200 shares at $5 each?

The correct answer is: $20

In a 14 reverse split, the stockholder receives 1 new share for every 4 old shares they owned. Since Christe owns 200 shares, she would receive 50 new shares (200/4 = 50). However, the reverse split also means that the stock price will increase 4 times its original value. So, since Christe's original stock was worth $5 per share, the new per share value will be $20 (4x$5 = $20). This means that even though Christe will now have 50 shares instead of 200, the total value of her investment will remain the same at $1000 ($20 per share x 50 shares = $1000). Therefore, C is the correct answer and A, B, and D are incorrect.