theoretical value of rights

theoretical value of rights definition - finance
The mathematically calculated value of a subscription right (a right to buy stock) after the offering is announced but before the right expires. The theoretical value of a stock option is affected by the underlying stock price, strike price, volatility, interest rate, dividend and time to expiration.

To calculate the theoretical value of rights, start with the market value of common stock, subtract subscription price per share, and divide the result by the number of rights needed to buy one share plus 1. For example, if the stock price of a share is $75 and the subscription price is $65, and five rights are needed to buy one share, one right would be worth $1.66 ($75 - $65 = $10/$6 = $1.66).

Webster's New World Finance and Investment Dictionary Copyright © 2003 by Wiley Publishing, Inc., Indianapolis, Indiana.
Used by arrangement with John Wiley & Sons, Inc.

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