SIE Exam Question 39: Answer and Explanation

Question: 39

An option to buy shares of a new issue of common stock at a specified price, over a specified, fairly short period of time, is a _____________.

• A. Right
• B. Warrant
• C. Call
• D. Put

Correct Answer: A

Explanation:

A right, as pertaining to a rights offering, is an option to buy one or more shares of common stock in a given company when new shares are issued, at a price initially below the market price, within a short timeframe, usually a month or less. A warrant is an option issued by a given company to buy one or more shares of common stock in that company at a price initially above the market price. Warrants are typically valid for multiple years. An option with the right to buy is known as a call option, and an option with the right to sell is known as a put option. Calls and puts are contracts made between participants in the marketplace rather than issued by a company.