Question During a rights offering, the underlying stock is said to sell “rights-on” and “ex-rights.” Explain the meaning of these terms and their significance to current stockholders and potential stockholders.

Rights offering refers to the process of issuing the shares that carry additional rights with it. These shares provide additional rights which the shareholders can utilize on a future date.

Rights-on means that when the stocks are initially issued then it provides the stockholders with the right to a future purchase of stocks. The rights-on stockholders have the right to use or sell the rights at the time of trading.

Ex-rights mean that after a specified time, the stocks will become ex-right and will not carry the right to a future purchase.The value of the stock will decline when it becomes ex-rights.

These terms are significant to the current and potential stockholders as theyhave to decide if they want to exercise the option, sell their shares at a high price when it is rights-on or sell it at a lower price when they are ex-rights.