Rights issues - part 2

In this lesson

1. 0:00 Theoretical ex-rights price formula explained
2. 3:02 Calculating TERP with worked example
3. 5:02 Working out the value of a right
4. 7:05 Yield-adjusted TERP with higher returns
5. 8:59 Key takeaways and next steps

About this lesson

We work through three core formulas: the basic Terp formula, the yield-adjusted Terp (which accounts for the return on new projects funded by the issue), and the value of a right per existing share. You'll see exactly how to apply each formula step-by-step, with worked examples using a company planning a one-for-five rights issue, so you can master these repetitive but crucial calculations with confidence. The video breaks down what happens to share price when a rights issue takes place, and why the theoretical ex-rights price will always be lower than the current share price. We also explore how the yield-adjusted Terp helps you account for situations where new projects funded by the issue might generate higher or lower returns than the company's existing projects—and how this impacts investor expectations and share value. By the end, you'll understand not just the mechanics of the formulas, but the logic behind them, making it easier to apply them accurately under exam conditions.

Duration: 10m