Rationale
After the reverse stock split, the customer will own 100 shares of XYZ stock.
In a reverse stock split, the total number of shares held by a shareholder decreases while the share price increases proportionately. For example, if the customer initially owns 1,000 shares and the company performs a 10-for-1 reverse split, the customer would end up with 100 shares.
A) 10 shares
This choice suggests an extremely low number of shares, which implies a more significant reverse split than what is indicated. A 10-for-1 reverse split would not result in just 10 shares from 1,000; rather, it would lead to 100 shares. Thus, this answer misrepresents the outcome of the reverse split.
B) 100 shares
This is the correct answer. If a reverse stock split of 10-for-1 occurs, the original 1,000 shares would be consolidated into 100 shares, maintaining the total value of the stock investment despite the lower share count.
C) 1,000 shares
This option indicates no change in the number of shares, which contradicts the very nature of a reverse stock split. The purpose of such a split is to reduce the number of shares outstanding, which would certainly lead to a decrease in the shareholder's total share count.
D) 10,000 shares
This choice implies an increase in the shares owned, which is not possible in a reverse stock split scenario. The fundamental concept of a reverse split is to consolidate shares, resulting in fewer shares, not more.
Conclusion
In summary, a reverse stock split consolidates shares, resulting in fewer shares for shareholders while increasing the share price proportionately. In this case, a 10-for-1 reverse split results in the customer owning 100 shares of XYZ stock, as opposed to 1,000. Understanding this mechanism is crucial for investors to accurately assess their holdings after such corporate actions.
