NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks
Which of the following is a feature of a rights issue by a listed company?
In a rights issue, new shares are offered to existing shareholders in proportion to their current holdings, normally at a discount to market price. Offers to outsiders, to institutions only, or free issue from reserves describe other mechanisms such as public issue, QIP or bonus issue.
- AShares are offered only to the public who are not existing shareholders
- BShares are offered to existing shareholders in proportion to their holdingsCorrect
- CShares are allotted only to qualified institutional buyers
- DShares are issued free of cost out of reserves
Explanation
A rights issue gives existing shareholders the right to subscribe to new shares in proportion to their current holding, usually at a price lower than market. Issues to the public are fresh public issues, to institutions are QIP, and free issues out of reserves are bonus issues.
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