When a firm issues new equity,market pressure applies first to the new shares issued and then to existing shares.Subsequent to the new issue,the value of the new shares will rise to the equilibrium price of the old shares.

Question

Quizplus · Accepted Answer

When a firm issues new equity, market pressure applies to all shares, not just the new shares. Therefore, it is not necessarily true that the value of the new shares will rise to the equilibrium price of the old shares. The market will determine the price of all shares based on supply and demand.

When a Firm Issues New Equity,market Pressure Applies First to the New