A stock feature permitting existing shareholders to purchase shares below market price is termed __________?
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Answer: C. rights offering
Explanation
A rights offering provides existing shareholders the privilege to purchase newly issued shares. These shares are offered at a price below the prevailing market trading value as a loyalty perk. Proportional allocation ensures current investors can maintain their ownership percentage without dilution. Rights offerings allow corporations to raise additional equity capital directly from current investors. Subscription rights are tradable instruments that can be sold on exchanges if unexercised by holders. Seasoned equity offerings often utilize rights to reduce underwriting fees and advisory expenses.
Corporations utilize rights offerings when issuing secondary equity without incurring heavy investment banking fees. Existing shareholders evaluate subscription prices carefully to decide whether to exercise or sell rights. Protecting ownership stakes prevents voting power dilution during corporate capital expansion phases. Shares offering is a generic description rather than the specific discounted shareholder privilege mechanism. Price offering is an imprecise term that does not designate shareholder subscription rights. Stock offering describes public equity sales broadly without capturing the specific discount feature.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
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