Question

11: Sue owns 2000 shares of the 20 million outstanding common shares of ABC Corp. ABC stockholders have preemptive rights. Now, ABC decides to sell 2 million new common shares through a rights offering. How many rights will Sue receive?

        a. 200

        b. 0.20

        c. 0.10

        d. 20

18: Suppose we employ a "price-weighted" methodology to construct and track a two-stock index based on Stocks X and Y. Stock X has an initial price of $10 and there are 10 million shares outstanding. Stock Y has an initial price of $20 and there are 40 million shares outstanding. One month later, Stock Xs price is $12 and Stock Ys price is still $20. The shares outstanding remain the same. What is the percentage change in our price-weighted index over the one-month period?

        a. 0

        b. 20.00%

        c. 6.67%

        d. 2.22%

Display process

Answer 1

Solution:
11.	Answer is a. 200
Working Notes:
	Number of rights will Sue receive = (Total no. of new shares to be issued/Total no. shares existing outstanding ) x Total no. shares held by Mr. Sue
		=(2 million/20 million) x 2,000
		=2,000,000/20,000,000) x 2,000
		=200
Hence,	Number of rights will Sue receive	200	rights
18.	Answer is c. 6.67%
Working Notes:
	Percentage change in our price-weighted index over the one-month period
	#NAME?
	Price-weighted index at initial = Sum of prices of the stocks at initial / No. of shares in the index
		=($10+$20)/2
		=$15
	Price-weighted index at one month later = Sum of prices of the stocks at one month later / No. of shares in the index
		=($12+$20)/2
		=$16
	Percentage change in our price-weighted index over the one-month period
	=   (price-weighted index at one month later - price-weighted index at initial) /price-weighted index at initial
	=($16-$15)/$15
	=0.0666666
	=6.66666 %
	=6.67%
Please feel free to ask if anything about above solution in comment section of the question.