Jon owns 12,000 shares of Do it Write, Inc. The shares are currently priced at $27 a share. Jon just received a rights offering with a price of $23 plus 4 rights. Jon would like to purchase 4,000 shares of this new offering. To do this, Jon should:

Question

Quizplus · Accepted Answer

To purchase 4,000 shares at the new offering, Jon needs to exercise his rights. Given he needs 4 rights to buy 1 share and wants to buy 4,000 shares, he needs 16,000 rights. Since he owns 12,000 shares and presumably gets 1 right per share, he has 12,000 rights. To get the additional 1,000 shares (requiring 4,000 rights), he must oversubscribe, as he doesn't have enough rights for all 4,000 shares directly.

Jon Owns 12,000 Shares of Do It Write, Inc