What is the subscription price of a right currently trading ex - ProProfs Discuss
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What is the subscription price of a right currently trading ex-rights?

The market price of the stock is $78.50, the intrinsic value of the rights is $1.25 and 3 rights are needed to subscribe for 1 share.

Asked by Kennedy, Last updated: Dec 05, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

$74.75-to answer this question, one must know what the formula is for calculating the intrinsic value when trading ex rights. from the text:intrinsic value = (market price subscription price) / number of rights to buy 1 sharenormally, you would be given the market price, subscription price and number of rights it takes to buy 1 common share. but in this question, you are given everything except the subscription price. so its a matter of filling in what you know and solving for what you dont know:intrinsic value = (market price subscription price) / number of rights to buy 1 share$1.25 = ($78.50 subscription price) / 3the next step is to isolate the subscription price:$1.25 x 3 = $78.50 subscription price$3.75 = $78.50 subscription pricesubscription price = $78.50 - $3.75subscription price = $74.75
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