Question

During a rights offering:

A)New issues are offered to the firm’s top management

B)New issues are offered directly to the general public

C)New issues are offered during earnings season

D)New issued are offered directly to the firm’s underwriters

E)New issues are offered to existing shareholders at a specified price

Answer 1

The correct option is "E"

Rights offering is made to existing shareholders. When a company needs more capital and plans to issue new shares, then the share outstanding in the market increases, which dilutes the ownership of the existing shareholders. So rights offering are beneficial for existing holders, where new shares are offered proportionally to existing shareholders, so that there ownership remain intact.

If you find the solution helpful, then please give rating.