Financial Planner

Answer: C - Current stockholders use pre-emptive rights to maintain their proportionate ownership in a firm. Firms that have given pre-emptive rights present a rights offering when they issue new stock. This offering allows existing shareholders to purchase new shares before they are offered to the general public. This right prevents dilution of an investor’s ownership percentage when new shares are issued. The right is defined as an option given to stockholders to buy additional shares a specified price during a specified time period. The distribution affects the shareholder’s proportionate interest in the corporation.