Securities Industry Essentials (SIE) Quiz: Evaluate Corporate Actions
20 questions · exam conditions
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Evaluate Corporate ActionsQuestion 1 of 20

A corporation declares a 3-for-1 stock split. If an investor owns 100 shares at $60 per share before the split, what will their position be after the split?

100 shares at $180 per share
300 shares at $20 per share
33.33 shares at $180 per share
300 shares at $60 per share
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Securities Industry Essentials (SIE) Quiz

Securities Industry Essentials (SIE) Quiz: Evaluate Corporate Actions

Practice Evaluate Corporate Actions in Securities Industry Essentials (SIE) with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Evaluate Corporate Actions, giving you a quick way to practice the rules, question types, and explanations that matter most for Securities Industry Essentials (SIE).

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A corporation declares a 3-for-1 stock split. If an investor owns 100 shares at $60 per share before the split, what will their position be after the split?

  1. 100 shares at $180 per share
  2. 300 shares at $20 per share (correct answer)
  3. 33.33 shares at $180 per share
  4. 300 shares at $60 per share
Explanation: In a 3-for-1 forward stock split, the number of shares held is multiplied by 3 (100 shares * 3 = 300 shares), and the market price per share is divided by 3 ($60 / 3 = $20 per share). The total value of the investor's holding remains unchanged at $6,000.

Question 2

An investor purchased 200 shares of XYZ Corp. at $50 per share. The company later executed a 5-for-4 stock split. What is the investor's new cost basis per share after this corporate action?

  1. $40.00 (correct answer)
  2. $50.00
  3. $62.50
  4. $37.50
Explanation: The investor's total cost basis is 200 shares * $50/share = $10,000. A 5-for-4 split increases the number of shares to 200 * (5/4) = 250 shares. The total cost basis remains $10,000, so the new cost basis per share is $10,000 / 250 shares = $40.00.

Question 3

ABC Corp. announces a 1-for-10 reverse stock split. An investor holding 1,000 shares at $2 per share before the split will have what position after the split?

  1. 100 shares at $20 per share (correct answer)
  2. 10,000 shares at $0.20 per share
  3. 1,000 shares at a lower price
  4. 1,000 shares at a higher price
Explanation: In a 1-for-10 reverse split, the number of shares is divided by 10 (1,000 / 10 = 100 shares), and the price per share is multiplied by 10 ($2 * 10 = $20 per share). This action consolidates shares to increase the stock price, while the total value of the holding remains the same.

Question 4

A primary reason for a publicly traded company to execute a reverse stock split is to

  1. increase the total market capitalization of the company.
  2. make shares more affordable for retail investors.
  3. meet an exchange's minimum share price requirements. (correct answer)
  4. distribute corporate profits to shareholders.
Explanation: A reverse split increases a stock's market price per share without changing the company's total market value. This is often done to raise the stock price above a certain level to avoid being delisted from an exchange like the NYSE or Nasdaq, which have minimum price requirements.

Question 5

On the ex-dividend date for a cash dividend, the market price of a stock is typically reduced by approximately the amount of the

  1. stock dividend.
  2. previous day's trading commission.
  3. stock split ratio.
  4. dividend per share. (correct answer)
Explanation: The ex-dividend date is the first day a stock trades without the right to receive the upcoming dividend. To reflect the fact that buyers on this date will not receive the payment, the market price of the stock is expected to drop by the amount of the per-share dividend on the morning of the ex-date.

Question 6

A corporation makes a formal offer directly to its shareholders to buy back a specific number of shares at a premium to the current market price. This corporate action is known as a

  1. rights offering.
  2. tender offer. (correct answer)
  3. secondary offering.
  4. stock split.
Explanation: A tender offer is a formal proposal made by a company (or a third party) to purchase shares directly from existing shareholders. It typically specifies the number of shares, a price (usually at a premium), and a limited time frame for shareholders to accept.

Question 7

When a company repurchases its own shares in the open market, what is the most likely effect on its earnings per share (EPS), assuming net income remains constant?

  1. EPS will decrease.
  2. EPS will increase. (correct answer)
  3. EPS will remain unchanged.
  4. EPS will become more volatile.
Explanation: Earnings per share (EPS) is calculated as Net Income divided by the number of Shares Outstanding. By repurchasing shares, a company reduces the number of shares outstanding. With a lower denominator and the same numerator (net income), the resulting EPS increases.

Question 8

What is the expected impact on a company's stock price when it announces a significant share repurchase plan?

  1. It will decrease due to the company spending its cash reserves.
  2. It will remain stable as the number of shares decreases.
  3. It will likely increase due to reduced supply and positive market signal. (correct answer)
  4. It will become more volatile due to uncertainty.
Explanation: Share buybacks reduce the supply of stock available for trading and signal that management believes the stock is undervalued. This combination of reduced supply and positive market sentiment typically leads to an increase in the stock's market price.

Question 9

A shareholder receives a proxy for an upcoming annual meeting but does not return the signed ballot. If the shareholder does not attend the meeting, their shares will

  1. be voted by the board of directors as they see fit.
  2. be voted in proportion to the votes of other shareholders.
  3. automatically be voted against all management proposals.
  4. not be voted. (correct answer)
Explanation: For shares to be voted, the shareholder must either attend the meeting in person or return a signed proxy ballot authorizing someone else (the proxy) to vote on their behalf. If they do neither, their shares are not voted and do not count towards the quorum or the vote totals for any proposals.

Question 10

A key difference between a tender offer and an open-market share buyback is that a tender offer

  1. is made at the prevailing market price.
  2. is a formal offer to all shareholders to purchase shares at a specified price. (correct answer)
  3. can only be executed by a third-party acquirer, not the issuer.
  4. slowly reduces the share count over a long period.
Explanation: A tender offer is a formal, public offer to all shareholders to purchase their stock at a specific price (usually a premium) during a specific time frame. In contrast, an open-market buyback involves the company purchasing its own shares on an exchange over time at prevailing market prices, much like any other investor.

Question 11

The document that a company sends to shareholders to provide information on matters to be decided at a stockholder meeting and to solicit their votes is called a

  1. prospectus.
  2. tender offer statement.
  3. proxy statement. (correct answer)
  4. Form 10-K.
Explanation: A proxy statement is a document containing the information the SEC requires companies to provide to shareholders to enable them to make informed decisions about matters that will be brought up at an annual or special stockholder meeting, and to solicit their vote via a proxy card.

Question 12

A company is conducting a rights offering primarily to

  1. purchase the assets of another company in a merger.
  2. allow existing shareholders to maintain their ownership percentage in a new share issuance. (correct answer)
  3. reward senior executives with discounted shares.
  4. reduce the number of shares outstanding to boost EPS.
Explanation: A rights offering gives current shareholders the preemptive right to purchase newly issued shares, usually at a discount, before they are offered to the public. This allows them to avoid the dilution of their ownership stake that would otherwise occur from the new issuance.

Question 13

An investor owns 500 shares of a stock with a cost basis of $22 per share. If the company declares a 10% stock dividend, what is the investor's adjusted cost basis per share?

  1. $22.00
  2. $24.20
  3. $20.00 (correct answer)
  4. $19.80
Explanation: The investor's total cost basis is 500 shares * $22 = $11,000. A 10% stock dividend increases the number of shares by 10% (500 * 0.10 = 50 additional shares), for a new total of 550 shares. The total cost basis remains $11,000. The new cost basis per share is calculated as $11,000 / 550 shares = $20.00.

Question 14

Which of the following corporate actions has the same economic impact on a shareholder's total position value as a 2-for-1 stock split?

  1. A 50% stock dividend
  2. A cash dividend equal to the share price
  3. A 100% stock dividend (correct answer)
  4. A 1-for-2 reverse stock split
Explanation: A 100% stock dividend means an investor receives one new share for every share they already own, effectively doubling their number of shares. A 2-for-1 stock split also doubles the number of shares. In both cases, the market price per share is halved, leaving the total value of the holding unchanged immediately after the action.

Question 15

When a company's management seeks to obtain authority from shareholders to vote on their behalf at an annual meeting, this process is known as

  1. a tender offer.
  2. a rights distribution.
  3. a proxy solicitation. (correct answer)
  4. an underwriting agreement.
Explanation: Proxy solicitation is the process of seeking votes (proxies) from shareholders for a particular proposal or slate of directors. Management sends proxy materials to solicit votes in favor of its proposals. Dissident shareholders may also engage in proxy solicitation to vote against management.

Question 16

An investor owns shares of a company that is being acquired by another firm for $75 cash per share. If the investor's cost basis is $60 per share, the acquisition will result in

  1. a non-taxable event.
  2. an unrealized capital gain.
  3. a realized capital gain. (correct answer)
  4. a return of capital.
Explanation: When an investor receives cash for their shares in an acquisition, it is treated as a sale of the security. This forces the recognition of any capital gain or loss for tax purposes. In this scenario, the investor has a realized capital gain of 15pershare(15 per share (75 sale price - $60 cost basis).

Question 17

Company A acquires Company B in a stock-for-stock merger. The terms state that each share of Company B will be exchanged for 0.5 shares of Company A. An investor holds 200 shares of Company B. What is their position after the merger is completed?

  1. 200 shares of Company B and 100 shares of Company A
  2. 400 shares of Company A
  3. 100 shares of Company A (correct answer)
  4. 200 shares of Company A
Explanation: In this merger, the investor's shares of Company B are exchanged for shares of Company A based on the agreed-upon ratio. The investor's 200 shares of Company B will be converted into 200 * 0.5 = 100 shares of Company A. The Company B shares will cease to exist after the merger.

Question 18

An investor who receives stock rights in a rights offering has all of the following choices EXCEPT

  1. exercising the rights to buy the new stock.
  2. selling the rights in the secondary market before they expire.
  3. holding the rights indefinitely until the stock price increases. (correct answer)
  4. allowing the rights to expire worthless.
Explanation: Stock rights are short-term securities with a set expiration date, typically lasting only a few weeks. An investor cannot hold them indefinitely. Their options are to exercise the rights, sell them in the market, or let them expire.

Question 19

When a parent company divests a division into a new, independent public company and distributes shares of the new company to its existing shareholders, this action is known as a

  1. merger.
  2. tender offer.
  3. reverse merger.
  4. spinoff. (correct answer)
Explanation: A spinoff is a type of corporate divestiture where a company creates a new, independent entity from one of its existing divisions. Shares of this new company are distributed to the parent company's shareholders, who then own stock in both separate companies.

Question 20

Following a tax-free spinoff, how is an investor's cost basis in the original parent company stock typically treated?

  1. It is reduced to zero, and a new basis is established for both stocks.
  2. It is allocated between the shares of the parent company and the new spun-off company. (correct answer)
  3. It remains entirely with the parent company stock.
  4. It is transferred entirely to the new spun-off company stock.
Explanation: In a spinoff, the investor's original total cost basis is not lost or changed. Instead, it must be allocated between the original parent company shares and the new spinoff shares. The company provides a formula for this allocation, which is typically based on the relative market values of the two entities immediately after the transaction.