The effect of a rights offering on a stockholder is
A) the right to sell stocks, in which the stockholder's wealth only increases if the stock is sold.
B) the right to own more stocks, in which the stockholder's wealth increases only if the new stock is purchased.
C) the right to own more shares at a cheaper price, while the wealth of the stockholder's original shares goes up.
D) the right to own more shares at a cheaper price, but the wealth of the stockholder's original shares goes down.

Question

Quizplus · Accepted Answer

In a rights offering, shareholders are given the right to purchase additional shares at a discount to the current market price. While this allows shareholders to potentially increase their stake at a lower cost, the value of their existing shares typically decreases because the offering dilutes the value of the outstanding shares.

The Effect of a Rights Offering on a Stockholder Is