A corporation issues rights to its existing shareholders to purchase additional shares at $30 per share. The stock is currently trading at $36. Each right entitles the holder to purchase one new share. A shareholder who does not wish to purchase additional shares should:

Why B — Sell the rights in the secondary market before they expire, as they have intrinsic value

Preemptive rights have intrinsic value when the subscription price ($30) is below the current market price ($36). Each right has a value of approximately $6 (market price minus subscription price, adjusted for the dilution factor). A shareholder who does not wish to exercise the rights should sell them in the secondary market before expiration to capture this value. Letting the rights expire would result in a loss of value for the shareholder. Rights are transferable and trade on exchanges during the subscription period.