Question

A customer owns 107 shares of ABC common stock. ABC declares a rights offering, with the terms being that for every 10 rights tendered, a shareholder may purchase one additional share at $22 per share. Any fractional rights holding may be rounded up to buy an additional share. If this shareholder wishes to subscribe, which statement is TRUE?

A. The shareholder can buy a maximum of 10 shares by paying $220

B. The shareholder can buy a maximum of 11 shares by paying $242

C. The shareholder can buy a maximum of 107 shares by paying $2,354

D. The shareholder can buy a maximum of 110 shares by paying $2,420

Answer 1

Answer: B. The shareholder can buy a maximum of 11 shares by paying $242

Step-by-step explanation:

The company declares that for every 10 shares owned, the shareholder is qualified to buy a additional share, and for shares not up to 10, they can also be rounded up to buy an additional share.

Since the shareholder already owns 107 shares and wishes to subscribe to the declaration, it means that he's qualified to buy

107÷10 = 10.7shares or 10, 7/10.

Since any fraction can be rounded up to buy an additional share, the shareholder can buy 11 shares

At $22 each

The shareholder will pay $22 × 11 shares

Which is $242.