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

In the context of equity share investing, what does a 'rights issue' by a listed company offer to existing shareholders?

A rights issue gives existing shareholders the right to subscribe to new shares in proportion to their current holding, generally at a price fixed by the company. It differs from a bonus issue, which is free, and from a buyback, where shares are sold back.

  1. AThe right to subscribe to additional shares in proportion to their existing holding, usually at a price set by the companyCorrect
  2. BThe right to receive free bonus shares out of reserves without paying anything
  3. CThe right to sell their shares back to the company at a premium
  4. DThe right to convert their shares into debentures at a fixed ratio

Explanation

A rights issue offers existing shareholders the chance to buy new shares in proportion to their holding, normally at a price decided by the company. Bonus shares are issued free from reserves, so that option describes a different action. Buyback and conversion into debentures are not what a rights issue provides.

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