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Problem:

Knight Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a subscription price of $50. At the close of business the day before the ex-rights day, the company's stock sells for $90 per share. The next morning, you notice that the stock sells for $65 per share and the rights sell for $3 each.

Requirement:

Question 1: What is the value of the stock ex rights?

Question 2: What is the value of the rights?

Question 3: What is the amount of instant profit you can make on ex rights day per share?

Note: Show all workings.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91175195

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