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Hello,
Can you please help me understand why, when there is a Rights Issue, we need to apply the bonus fraction being the Market Value of shares/TERP to a number of shares to arrive to an average number of shares? I mean, I understand that we need to adjust the number of shares retrospectively to make all periods comparable, but mathematically, I do not understand why we are multiplying number of shares by a $ shares fraction to arrive to an average number of shares. I am not good at maths but I would have thought that multiplying 5 shares x $5 gives me $10 and not 10 shares.
What am I missing?
Thanks in advance
Sara
Hi Sara,
I would not spend the time trying to understand the mathematics behind it. All you need to be able to do in the exam is to calculate the fraction and apply it to the calculation accordingly. You will not be required to do anything further in the exam.
Thanks
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