Given an Efficient Market,a Rights Offer

question 12

Multiple Choice

Given an efficient market,a rights offer

• A)provides a means for current shareholders to sell their shares for more than their actual worth.
• B)increases the wealth of the firm's current shareholders.
• C)neither creates nor destroys shareholder value.
• D)provides a means of creating value for only those who exercise their rights.
• E)imposes losses on the firm's current shareholders.

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Definitions:

Call Increases

Typically refers to an increase in the price of call options, which are contracts that give the holder the right to buy the underlying asset at a specified price.

Wasting Asset

An asset that inexorably declines in value over time due to physical deterioration or the expiration of intangible rights.

Put Option

An option that gives the owner the right, but not the obligation, to sell an asset.

Call Option

An option that gives the owner the right, but not the obligation, to buy an asset.