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    Value of one right and ex-rights price

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    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?

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    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.