The Preemptive Right Is Important to Shareholders Because It

question 74

Multiple Choice

The preemptive right is important to shareholders because it

• A) allows managers to buy additional shares below the current market price.
• B) will result in higher dividends per share.
• C) is included in every corporate charter.
• D) protects the current shareholders against a dilution of their ownership interests.
• E) protects bondholders and thus enables the firm to issue debt with a relatively low interest rate.

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Definitions:

Efficient Frontier

A concept in portfolio theory representing the set of optimal portfolios offering the maximum expected return for a given level of risk or the minimum risk for a certain level of expected return.

Degree-Of-Risk Tolerance

The level of variability in investment returns that an investor is willing to withstand in their investment portfolio.

Risk Aversion

The preference to avoid uncertainty in investment decisions, showing a tendency to prefer safer investments over riskier ones.

Capital Gains Tax

The tax on the profit made from the sale of a non-inventory asset when the sale price exceeds the purchase price.