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NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Public Offering / Corporate Actions

A company declares a rights issue of 1 share for every 4 held at Rs 150 when the market price is Rs 250. Mr. Shah holds 800 shares on the record date and subscribes fully to his entitlement. What amount must he pay and how many shares will he receive?

Mr. Shah receives 200 shares and pays Rs 30,000. A 1:4 ratio on 800 shares gives 200 shares, and each is issued at the rights price of Rs 150, not the market price, so 200 times 150 equals Rs 30,000.

  1. ARs 30,000 for 200 sharesCorrect
  2. BRs 50,000 for 200 shares
  3. CRs 30,000 for 160 shares
  4. DRs 37,500 for 250 shares

Explanation

Entitlement = 800 / 4 = 200 shares. Payment = 200 x Rs 150 = Rs 30,000. Rs 50,000 uses the market price instead of the rights price. Rs 37,500 for 250 shares wrongly treats the ratio as 1:3.2 and mixes in other numbers. The rights entitlement credited to the demat account (REs) is used to apply.

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