Reverse stock splits are the opposite of stock splits where old shares are merged to form fewer new shares. So for instance, a 1-for-2 reverse split in this case would mean that every 2 old shares are merged into 1 new share, effectively halving the total number of outstanding shares to 5.
Reverse stock splits have no effect on shareholders’ wealth.
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Are you a CFA Level I candidate, or someone who is exploring taking the CFA exam? Four years ago, I was in your shoes. I am a Computer Engineering graduate and have been working as an engineer all my life. Having developed a keen interest in finance, I decided on a career switch to the finance field and enrolled into the CFA program at the same time.
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