Skip to content

NISM Certifications · NISM-Series-XV: Research Analyst · Introduction to Securities Market

A company's Rs 10 face value shares have a book value of Rs 120 per share and trade at Rs 300. It does a rights issue at Rs 200, which is lower than market price. Which statement about the rights issue is correct?

A rights issue is offered to existing shareholders in proportion to their holdings, and they can either subscribe or renounce their entitlement. The price is set by the company and need not be face value. Since the company raises fresh capital, it is a primary market activity.

  1. AIt is offered only to new investors outside the existing shareholder base
  2. BIt is offered to existing shareholders in proportion to their holdings, who may choose to subscribe or renounceCorrect
  3. CIt must be priced at face value of Rs 10
  4. DIt is a secondary market transaction because shares trade at Rs 300

Explanation

A rights issue offers new shares to existing shareholders in a stated ratio; they may subscribe or renounce entitlements. Pricing is decided by the company and need not equal face value, and the issue is a primary market fundraising, not secondary trading. It is not aimed at new investors.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Securities Market shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Securities MarketFree diagnostic mock

More Introduction to Securities Market questions