Question : A rights issue allows existing shareholders to:
Option 1: Sell their shares at a premium
Option 2: Buy additional shares at a discounted price
Option 3: Trade their shares in the secondary market
Option 4: Receive dividends from the company
Correct Answer:
Buy additional shares at a discounted price
Solution : The correct answer is (b) Buy additional shares at a discounted price.
A rights issue allows existing shareholders of a company to buy additional shares at a discounted price. The company offers the new shares to its existing shareholders in proportion to their current ownership, providing them with the right, but not the obligation, to purchase more shares. This allows shareholders to maintain their proportional ownership in the company. Typically, the price at which the new shares are offered in a rights issue is lower than the prevailing market price. This discounted price provides an incentive for existing shareholders to exercise their rights and purchase additional shares.
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