Theoretical ex-rights price

Theoretical ex-rights price TERP is a situation where the stock and the right attached to the stock is separated .(TERP) is a calculated price for a company's stock shares after issuing new rights-shares with the assumption that all these newly issued shares are taken up by the existing shareholders. The consequence would be that the price will be lower than the old shares but higher than the new issued shares.[1][2]

Example

If the subscription price of the 1 new share is 800 pence (p) but the market price of 4 existing shares are 1000p each, then the total value of the 5 shares would be 4800, so the market price of the shares after the rights issue is complete would be 960p. The value of the right to buy the one extra share at the subscription price of 800p would be 160p (=(1000-800)*4/(4+1)).

References

  1. ↑ "Theoretical Ex-Rights Price". investopedia.com. Retrieved 2008-03-02.
  2. ↑ "Chief Examiner's Report, Global Operations Management, Diploma Winter 2006" (PDF). Securities and Investment Institute. 2006. Retrieved 2008-03-02. See page 2.


This article is issued from Wikipedia - version of the 9/6/2016. The text is available under the Creative Commons Attribution/Share Alike but additional terms may apply for the media files.