1. Given a 2-for-15 rights issue, a current market price of $13.50 and subscription price of $12, this implies a theoretical rights price of:
2. Given a current market price of $7.20, a subscription price of $5.50 and a theoretical rights price of $1.36, this implies a:
3. Given a 2-for-17 rights issue, a current market price of $7 and a subscription price of $6.50, the implied ex-rights price is:
Q. 1). Solution :-
Theoretical Ex- rights price = (Existing shares * market price per share + Number of right issue shares * Subscription price) / (Existing shares + Number of right issue shares)
= (15 * 13.50 + 2 * 12) / (15 + 2)
= (202.50 + 24.00) / 17
= 226.50 / 17
= $ 13.32
Theoretical rights price = Theoretical Ex- rights price - Subscription price of right issue.
= 13.32 - 12
= $ 1.32
Conclusion :- Theoretical right price = $ 1.32
Q. 3). Solution :-
Theoretical Ex- right price = (Existing shares * market price per share + Number of right issue shares * Subscription price) / (Existing shares + Number of right issue shares)
= (17 * 7 + 2 * 6.50) / (17 + 2)
= (119 + 13) / 19
= 132 / 19
= 6.95 (approx).
Conclusion :- Theoretical Ex-right price = $ 6.95 (approx).
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