Question: A quoted company is making a rights issue, which of the statements is correct? The solution is d) the share price could increase after the issue. I understand this is correct, however option b) the new shares could be issued at a premium to the present market price. How come this is not correct? I thought rights issues usually are offered at a lower price?
Hello, you are correct that shares in rights issues are offered at a price below that of the market price. If they weren't then shareholders would have no motivation to purchase the shares under the rights issue (given they could just purchase cheaper shares on the market). So the 'correct' version of b) is 'the new shares would *not* be issued at a premium to the present market price.
