Question: Knight Inventory Systems Inc has announced a rights offer The
Knight Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take four rights to buy a new share in the offering at a subscription price of $35. At the close of business the day before the ex-rights day, the company’s stock sells for $60 per share. The next morning, you notice that the stock sells for $53 per share and the rights sell for $3 each. Are the stock and the rights correctly priced on the ex-rights day? Describe a transaction in which you could use these prices to create an immediate profit.
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