NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks
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, usually at a discounted price. It differs from a bonus issue, which is free, and from an IPO, which is a first public offer.
- AShares offered to the public for the first time
- BShares offered to existing shareholders in proportion to their holdingsCorrect
- CFree shares issued out of reserves to existing shareholders
- DShares issued only to institutional investors
Explanation
In a rights issue, new shares are offered to existing shareholders in proportion to their holdings, usually at a price below market. Free shares from reserves are bonus shares, and a first-time public offer is an IPO.
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