assume a stock has an ex-rights price of $32. the rights offer has a requirement of 3 rights per new share and a subscription price of $30. what is the rights-on stock price?

In order to give present shareholders the chance to keep some of their corporate ownership, firms issue stock rights. For every share of stock, one right is granted, and because each right may usually only buy a small portion of a share, it takes several rights to buy one share. Immediately after the right is issued, it will be "rights on," meaning that the underlying stock will trade with the right attached. When that happens, the right separates from the stock and starts trading separately. From that point on, the stock trades "rights off" until the rights expire. Within 30 to 60 days of issuance, rights are transient financial instruments that swiftly expire. Always set below the going market rate is the exercise price for rights.

Formula :

Stock Price =(P rights+ Rights subscription price per share) / (Number of rights required to buy one share + 1)

Here, Stock price = $32

Rights subscription price per share = $30

Number of rights required to buy one share = 3

$32 = [(3 × P rights-on) + $30] / 4

$32*4 = [(3 × P rights-on) + $30]

$128 - $30 = (3 × P rights-on)

$98/3 = P rights-on

P rights-on = $32.67

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