Under a Rights Issue, once the shares have been issued the NEW Market price would be...............

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BlackTom AI · Accepted Answer

When a rights issue occurs, the company issues new shares at a subscription price that is typically lower than the prevailing market price to encourage uptake. The combined effect of the new issued shares and the existing shares tends to push the post-issue trading price down from the pre-issue market price, due to dilution, but it does not fall below the subscription price because investors can buy at that discounted level.

Option 1: 'Above the Subs Price but below the original Market Price' — This aligns with the common outcome where the new market price settles somewhere between the subscription price (which is lower than the market price) and the pre-issue market price, reflecting the value added by the new shares but the dilution effect.

Option 2: 'Below the Subs price' — This is unlikely, since the market price after a right issue cannot realistically trade below the price at which new shares are issued, which would imply an immediate loss for investors who exercise or for the market; such a scenario would undermine the rights issue incentive.

Option 3: 'Cannot calculate without figures' — While exact values require numbers (how many new shares, what the subscription price, and the existing price), the qualitative relationship given in typical explanations clearly indicates the price will be between the subscription price and the original market price, making a general statement possible without precise figures.

Option 4: 'Above the pre Rights Issue market price' — This would imply the rights issue increased the overall value per share beyond the old price, which contradicts the dilution mechanics; typically the post-issue price reflects the addition of new shares at a discount, leading to a price lower than the original market price, not higher.

In summary, the most accurate description of the expected post-issue trading price is that it sits between the subscription price and the original market price, reflecting the discount offered and the dilution effect, which makes Option 1 the best characterization among the choices.

Under a Rights Issue, once the shares have been issued the NEW Market price would be...............

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