Question : Which of the following statement is correct?
Statement 1:Under Private Placement, the company offers the new shares to its existing shareholders in proportion of shares already held by them.
Statement 2: Money market instruments are less risky.
Option 1: Both are true
Option 2: Both are false
Option 3: Statement 1 is true and statement 2 is false.
Option 4: Statement 1 is false and statement 2 is true.
Correct Answer: Statement 1 is false and statement 2 is true.
Solution : Under private placement the company sell security to the institutional investors or brokers instead of selling them to the general public. Then sell securities to selected giands at a higher price this method is preferred as it is cheaper method of raising funds as compared to a public issue.
Hence, option D is correct.
