Assuming Everything Else Is Constant, When a Stock Goes Ex-Rights

question 61

Multiple Choice

Assuming everything else is constant, when a stock goes ex-rights its price should:

• A)decrease since the stockholder is losing an option.
• B)increase since the corporation no longer has the right to force the stockholder to convert.
• C)remain the same since an efficient market would anticipate this change.
• D)move up or down depending on whether a small investor wanted to exercise his/his rights.
• E)None of the above.

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Definitions:

Legal Markets

Markets operating within the framework of regulatory laws and norms, where transactions of goods and services occur legally.

Supply and Demand

The fundamental economic model that describes the interaction between the availability of a particular product and the desire for that product, determining its price.

Deadweight Loss

A loss of economic efficiency that occurs when the optimal level of supply and demand is not achieved.

Supply Elasticities

Measures the responsiveness of the quantity supplied of a good to a change in its price.