NISM Certifications · NISM-Series-XV: Research Analyst · Corporate Actions
A company's shares trade at Rs 250 cum-rights. It offers rights in the ratio 1 for 4 at Rs 150 per share. What is the theoretical ex-rights price (TERP)?
The theoretical ex-rights price is Rs 230. Four existing shares worth Rs 1,000 plus one new share at Rs 150 give total value Rs 1,150 spread over five shares, so Rs 1,150 divided by 5 equals Rs 230.
- ARs 230Correct
- BRs 200
- CRs 220
- DRs 240
Explanation
Four shares at Rs 250 = Rs 1,000, plus one new share at Rs 150 = Rs 1,150 for 5 shares. TERP = 1,150 / 5 = Rs 230. Check: value of the right = 250 - 230 = Rs 20, and 4 rights fund the Rs 150 purchase consistently. Rs 200 would result from the wrong averaging of 250 and 150.
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