FINRA Securities Industry Essentials Exam (SIE) SIE Question # 38 Topic 4 Discussion
SIE Exam Topic 4 Question 38 Discussion:
Question #: 38
Topic #: 4
An investor holds 1,000 shares of a stock with a total cost basis of $5,000 in his account when a 1-for-5 reverse stock split is announced. What will be the investor ' s total cost basis after the payable date of the reverse split?
Cost Basis in Reverse Split: The total cost basis remains unchanged in a reverse stock split. Only the number of shares and price per share adjust.
Pre-Split: 1,000 shares at $5 each = $5,000.
Post-Split: 200 shares at $25 each = $5,000.
Incorrect Options:
A, B, and D: Do not reflect the unchanged total cost basis.
IRS Guidance on Stock Splits: IRS Stock Split Info.
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