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

question 2

Multiple Choice

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

• A) decrease since the investor who purchases the shares 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) increase since the investor who purchases the shares is gaining an option.

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Definitions:

IFRS 3

An international financial reporting standard that provides guidance on accounting for business combinations, requiring acquired assets and liabilities to be recorded at fair value.

Business Combinations

Transactions or events in which one entity gains control over one or more other entities, often involving mergers and acquisitions.

Consolidated Income Statement

A financial document that aggregates the financial performance (revenues, expenses, profits) of a parent company and its subsidiaries.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue.