A corporation has issued rights to its shareholders. The subscription price is $50 and five rights are needed along with the subscription price to buy one of the new shares. The stock is selling for $59 rights-on. What would be the value of one right? If the stock goes ex-rights, what would the new stock price be?© BrainMass Inc. brainmass.com March 4, 2021, 7:43 pm ad1c9bdddf
Define N to be the number of rights required to purchase one share
The formula for the ex-rights share price is:
Ex-rights price = [N × rights-on price + subscription price]/(N+1)
The value of a right can be calculated as either
Value of one right = ...
The solution explains how to calculate the value of one right and the ex-rights price.