What Is the Primary Reason for a Reduction in Share

question 86

Multiple Choice

What is the primary reason for a reduction in share value after a successful rights issue? The new shares:

• A) have higher underwriting expenses.
• B) are offered at attractive prices.
• C) reduce the firm's return on equity.
• D) do not include voting rights.

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Definitions:

Derivatives Market

A financial market for securities whose value derives from the value of other underlying financial assets, such as stocks, bonds, or commodities.

Interest Rate

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.

Futures Markets

Exchanges that facilitate the buying and selling of futures contracts, which are agreements to buy or sell assets at a future date at a predetermined price.

Leverage

The use of borrowed money to increase the potential return of an investment, which can also magnify the potential loss.