Which of the following statements is incorrect? a Dilution refers to the loss in existing shareholder’s equity. b A rights offering is the issuing of an option directly to the existing shareholders to acquire stocks. c The green shoe option is used to cover oversubscription. d Empirical evidence suggests that upon announcement of a new equity issue, current stock prices generally increase, perhaps because the new issue reflects management's view that common stock is currently undervalued. e A firm commitment arrangement with an investment banker occurs when the investment banker buys the securities for less than the offering price and accepts the risk of not being able to sell them
Which of the following statements is incorrect?
| a |
Dilution refers to the loss in existing shareholder’s equity. |
|
| b |
A rights offering is the issuing of an option directly to the existing shareholders to acquire stocks. |
|
| c |
The green shoe option is used to cover oversubscription. |
|
| d |
Empirical evidence suggests that upon announcement of a new equity issue, current stock prices generally increase, perhaps because the new issue reflects management's view that common stock is currently undervalued. |
|
| e |
A firm commitment arrangement with an investment banker occurs when the investment banker buys the securities for less than the offering price and accepts the risk of not being able to sell them |
Which of the following statements is true?
| a |
The |
|
| b |
Overreaction, reversion and delayed response would be indicative of inefficient markets. |
|
| c |
Empirical evidence suggests that new equity issues are generally overpriced by investor excitement concerning a new issue. |
|
| d |
When the stock price follows a random walk, the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to a predictable amount based on the past prices. |
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
