Canadian Securities Course (CSC) Level 1 Practice Exam

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How does a reverse stock split work?

  1. Increases the number of outstanding shares and increases the stock price

  2. Increases the number of outstanding shares and decreases the stock price

  3. Decreases the number of outstanding shares and increases the stock price

  4. Decreases the number of outstanding shares and decreases the stock price

The correct answer is: Decreases the number of outstanding shares and increases the stock price

A reverse stock split works by decreasing the number of outstanding shares while increasing the stock price. This is achieved by combining a certain number of existing shares into a single share, effectively reducing the total number of shares available in the market. As a result, the price per share increases due to the reduced supply of shares. This strategy is often used by companies to boost their stock price, making it more attractive to investors and potentially meeting stock exchange requirements.

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