SIE Exam Question 677: Answer and Explanation

Question: 677

Which of the following is correct regarding a pre-emptive right?

• A. It is also referred to as a "subscription right" or a "subscription privilege."
• B. It is an obligation for existing shareholders to purchase new shares of stock before they are offered to the public.
• C. Exercising a pre-emptive right can cause dilution.
• D. All of the above are correct.

Correct Answer: A

Explanation:

A pre-emptive right is also referred to as a "subscription right" or a "subscription privilege." It is a right, but not an obligation for existing shareholders to exercise, and it prevents dilution among existing shareholders.