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Question

Difficulty: EasySettlement Dates, Trade Confirmations, and Corporate Actions

An investor holds 200 shares of ABC Corporation common stock priced at $50 per share. ABC Corporation executes a 1-for-4 reverse stock split. What is the new price per share, in dollars, immediately following the split?

Answer: 200 dollars

Answer

The new price per share immediately following the 1-for-4 reverse stock split is $200.
In a 1-for-4 reverse stock split, every 4 existing shares are converted into 1 share. Because corporate actions do not change the total market value of an investor's holding, the price per share must increase proportionally by a factor of 4 (50×4=50 \times 4 = 200).

Step-by-Step Solution

1
Determine the price adjustment multiplier for a 1-for-4 reverse stock split
Price multiplier = 4
A reverse stock split reduces the total share count and increases the price per share proportionally so that total position value remains unchanged.
2
Multiply the pre-split share price by the price multiplier
50×4=50 \times 4 = 200
Applying the 4-to-1 ratio to the $50 stock price yields the post-split price per share.

Key Concept

Post-split share price calculation for a reverse stock split
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions