Skip to content

NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks

In the context of equity share capital, which of the following best describes a 'rights issue' by a listed company?

A rights issue is an offer of new shares to existing shareholders in proportion to the shares they already hold, normally at a discounted price. It differs from a bonus issue, which is free, and from a buyback, where the company repurchases shares.

  1. AOffer of new shares to existing shareholders in proportion to their current holdingCorrect
  2. BFree distribution of shares out of accumulated reserves to existing shareholders
  3. COffer of shares to a select group of institutional investors only
  4. DRepurchase of shares from existing shareholders at a premium

Explanation

A rights issue gives existing shareholders the right to subscribe to new shares in proportion to their holdings, usually at a discount. A bonus issue is a free distribution out of reserves, a private placement targets select investors, and a buyback is a repurchase by the company.

Did you get it right without looking?

One question tells you little. A timed set on Investing in Stocks shows your real accuracy, how long you take and where you lose marks.

Practise Investing in StocksFree diagnostic mock

More Investing in Stocks questions