Explore BrainMass

Explore BrainMass

    Value of one right and ex-rights price

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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 June 3, 2020, 7:58 pm ad1c9bdddf

    Solution Preview

    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 = ...

    Solution Summary

    The solution explains how to calculate the value of one right and the ex-rights price.