Rights Issue TERP Calculator (Theoretical Ex-Rights Price)
Theoretical share price after a rights issue, the value of each right, the factor that restates old prices, and what it costs to take up your entitlement.
Results
What this tool does
When a company offers existing shareholders new shares at a discount, the shares are worth less after the offer than before, because the same company is now split into more shares. The theoretical ex-rights price is simply the weighted average of the old price and the subscription price, and each right is worth the gap between the old price and TERP. In theory a holder who takes up the offer or sells the rights ends up equally well off. The market price rarely lands exactly on TERP, since news and demand keep moving it; price histories are usually restated by multiplying by TERP ÷ cum-rights price.
Formula
TERP = (old × price + new × subscription price) ÷ (old + new) · right = price − TERP
Variables
| Symbol | Meaning | Unit |
|---|---|---|
p | Share price before the rights issue (cum-rights) | — |
s | Subscription price of a new share | — |
nn | New shares offered… | — |
nb | …for every this many shares held | — |
sh | Shares you hold | — |
T | Theoretical ex-rights price (TERP) | — |
RV | Value of the rights attached to each share held | — |
RN | Value of the right needed to buy one new share | — |
AF | Adjustment factor for past share prices | — |
NS | New shares you may subscribe | — |
CS | Cash needed to take them all up | — |
Worked example
- Share price before the rights issue (cum-rights)10
- Subscription price of a new share8
- New shares offered…1
- …for every this many shares held4
- Shares you hold400
- Theoretical ex-rights price (TERP)9.6000
- Value of the rights attached to each share held0.4000
- Value of the right needed to buy one new share1.6000
- Adjustment factor for past share prices0.96000
- New shares you may subscribe100
- Cash needed to take them all up800.00
Limitations
- This is an informational calculator, not personalised financial advice. Rates, fees, taxes and contract conditions vary between institutions and countries.
- The tool works with whatever currency you use for the inputs; it does not convert between currencies.