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Please help me with the following:
why is the answer 3.85$ on the following question:The share price of PC plc is 4$ per share.
They announce a 1 for 5 rights issue at 3.10$ per share.
What is the theoretical ex-rights price.Thanks
Suppose the shareholder currently has 5 shares (any number will do – the answer will still be the same).
These 5 shares are currently worth a total of 5 x $4 = $20
The buy 1 more share for $3.10So they now have 6 shares, and for ‘no gain / no loss’ these shares need to be worth in total $20 + $3.10 = $23.10
So the TERP = 23.10 / 6 = $3.85 per share.
(The free lecture on this may help you!)
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