A company issues subscription rights to its existing common shareholders. Which statement accurately describes a characteristic of these rights?

Question: A company issues subscription rights to its existing common shareholders. Which statement accurately describes a characteristic of these rights?

Answer options:

• They allow shareholders to sell their existing shares back to the company at a premium.
• They typically have a long-term expiration and are often detachable from the shares. ✅ They give shareholders the option, but not the obligation, to purchase new shares at a specified price, usually below the market price.
• They are a form of preferred share that guarantees a higher dividend yield.

Correct answer: They give shareholders the option, but not the obligation, to purchase new shares at a specified price, usually below the market price.

Explanation: Subscription rights are short-term options issued to existing shareholders, giving them the right to purchase additional new shares of the company at a subscription price, usually below the current market price, before the shares are offered to the public.