Question

Calculate the number of rights to buy one share, given the following information: each right's intrinsic value of $2.72; discounted or subscription share price of $8.17; share price during the rights-on period of $36.50.

a) 9.89

b) 9.65

c)9.42

d)9.18

e)8.94

Answer 1

Compute the number of right to buy one share, using the equation as shown below:

Right value = (Share price – Subscription price)/ (Number of rights + 1)

         $2.72 = ($36.50 – $8.17)/ (Number of rights + 1)

          $2.72 = $28.33/ (Number of rights + 1)

Rearrange the above-mentioned equation to determine the number of rights to buy one share as follows:

Number of rights = ($28.33/ $2.72) – 1

                            = 10.42 – 1

                            = 9.42

Hence, the number of rights to buy one share is 9.42.