SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 6: Answer and Explanation

Question: 6

Which type of corporate action results in the following adjustment to securities: five shares of the firm's common stock are replaced by two shares of the firm's common stock?

• A. Stock split
• B. Reverse stock split
• C. Tender offer
• D. Exchange offer

Correct Answer: B

Explanation:

B: Choice B reflects an exchange of current shares of a security for a lesser number of new shares of the same security. Choice A would result in an exchange of current shares of a security for a greater number of new shares of the same security. Choice C would reflect a public offer of a certain monetary price for current shares of a firm. Choice D would reflect a public offer of a certain quantity of another security for current shares of a firm.