What happens to a stockholder's dilution of interest if they do not exercise their rights?

When a stockholder does not exercise their rights in a rights offering, their ownership percentage in the company can decrease, leading to dilution of their interest. In a rights offering, existing shareholders are given the opportunity to purchase additional shares, typically at a discounted price, to maintain their proportionate ownership of the company. If they choose not to buy these additional shares, their relative stake becomes smaller compared to those who do exercise their rights.

As new shares are issued to those who take up the offer, the total number of shares outstanding increases, which spreads the ownership across a larger number of shares. Consequently, the stockholder's percentage of ownership in the company is diluted. This situation effectively makes their investment less valuable, as the share of ownership in the company's profits and voting power decreases.

The other options do not accurately describe the scenario. The dilution of interest does not remain constant, increase, or fluctuate in a way that contradicts the fundamental concept of dilution; it consistently decreases when shares are issued and not purchased by the existing shareholder.