SIE - Securities Industry Essentials Exam

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A company is buying back stock on the open market. These shares, once reacquired by the company, become Treasury Stock. What happens to the float as a result of the company buying back stock?

It decreases
A
It increases
B
There is no effect on the float
C
Not enough information
D

Explanations

When a company repurchases its own shares, the float decreases. The float is the total number of shares outstanding for the public to buy and sell. Treasury stock is purchased out of the float and then kept in the company's treasury; therefore reducing the float.