Dictionary of Finance and Investment Terms: theoretical value (of a right)
theoretical value (of a right)
mathematically determined market value of a subscription right after the offering is announced but before the stock goes ex-rights. The formula includes the current market value of the common stock, the subscription price, and the number of rights required to purchase a share of stock:
Thus, if the common stock market price is $50 per share, the subscription price is $45 per share, and the subscription ratio is 4 to 1, the value of one right would be $1:
| 50 - 45 4 + 1 | = | 5 5 | = | 1 |
