Question

A company's price Tuesday at closing was 34.20. After closing it had a 3:4 reverse split. What was the company's return for Wednesday, if you know that the closing price of the company on Wednesday is $38.78?

Answer 1

The company's return for Wednesday is 13.5%.

After the 3:4 reverse split, the number of shares decreases by 4/3, and the stock price increases by 3/4 to keep the market capitalization constant.

The new stock price after the reverse split is:

34.20 x (3/4) / (4/3) = 25.65

The return from Tuesday's close to Wednesday's close is:

(38.78 - 25.65) / 25.65 x 100% = 50.95%

However, this return is based on the adjusted price after the reverse split. To get the actual return, we need to adjust the return back to the pre-split price level by dividing by 3/4:

50.95% / (3/4) = 67.93%

So the company's return for Wednesday is 67.93% on the pre-split price level.