- This topic has 1 reply, 2 voices, and was last updated 3 years ago by
.
- Posts
Sir could you help me a little bit understanding the rights issue concept with the help of example 1 of the notes (I watched your lecture on this already which makes me ask you these)
1) TERP is the price for both ordinary shares and rights shares & this is the price at which the shares will be trading on the stock exchange?
2) Value of rights is the price at which we can sell the letter of rights shares to somebody else. And anybody buying that letter has to pay $1.60 to us & afterward they will pay $3 to buy those rights shares which will cost them $4.60 which is exactly the TERP price at which the ordinary shares & rights shares will be trading at after the right issue!
3) I don’t understand what you meant by the ‘per new share’ you were referring to the value of rights is the price per new share (new share is the right share which will be given if we already own 4 ordinary shares in the company so $1.60 is the total price of 4 existing shares, right?)
Please I would like you to please comment on this whether they are true or not. Thanks for your time Sir 🙂
1. Correct
2. Correct (although in real life the value of the rights will be a little lower than $1.60 so as to encourage people to buy them from us).
3. The value of one right is $1.60. However since it is a 1 for 4 rights issue you needed to have 4 existing shares in order to get 1 right. So is you need 4 existing shares to get something worth $1.60 then it is like getting 1.60/4 = $0.40 because of each existing share.
- You must be logged in to reply to this topic.