Reverse Split
What is it? A reduction in the number of shares of stock. The opposite of a stock split, a reverse split means that shareholders will hold fewer shares although the value of their investment remains the same. Companies use various formulas to determine how much stock each shareholder should have, such as 1-for-2 or 1-for-5. If you own 100 shares of the stock YUP, valued at $5 per share, a 1-for-2 split means you will have 50 shares valued at $10 a share. In each case your stake is worth $500. Companies often announce reverse stock splits to make their stock more attractive to institutional investors. Some funds have prohibitions against buying stocks that are priced too low, which are considered very speculative. Stock prices often sag for some time after the announcement of a reverse split.Added By: Lily
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