Rights Issue Calculator (TERP & Value of a Right)
Calculate the theoretical ex-rights price (TERP), the value of each right, the new shares you can subscribe and what happens to your wealth if you take up, sell or ignore your rights.
How it works
TERP = (M × P + N × S) ÷ (M + N) for an issue of N new shares for every M held · value of a right per existing share = P − TERP = N × (P − S) ÷ (M + N) · nil-paid right per new share = TERP − S · new shares = shares held × N ÷ M
In a rights issue a company offers existing shareholders new shares in proportion to their holding, at a discount to the market price. Because new shares come in below market, the share price should fall to the theoretical ex-rights price — the weighted average of the old shares at market and the new shares at the subscription price. The right to subscribe is worth the difference, and it can usually be sold. Taking up your rights or selling them both keep your wealth intact in theory; letting them lapse loses their value. In Spain and Latin America this value is the “valor teórico del derecho de suscripción preferente”.
Worked example
A 1-for-4 rights issue at 8.00 when the share trades at 10.00 gives TERP = (4 × 10 + 1 × 8) ÷ 5 = 9.60, so each right is worth 10.00 − 9.60 = 0.40 (per new share, 9.60 − 8.00 = 1.60). With 1,000 shares you can buy 250 new ones for 2,000.00. Taking them up or selling the rights for 400.00 both leave you with 10,000.00 of value; letting them lapse leaves 9,600.00.
Sources: Investopedia — Rights Offering (Issue) · Wikipedia — Rights issue
Frequently asked questions
Should I take up my rights?
If you want to keep your percentage ownership and have the cash, take them up; if not, sell the rights in the market. Doing nothing is usually the worst option, because your stake is diluted without compensation.
Why does the share price fall after a rights issue?
New shares are sold below the market price, so the average value per share drops to the TERP. In practice the price also reflects how the market judges the use of the new money.
Is the right the same as the discount?
No. The discount is the gap between the market and subscription prices; the right per existing share is that discount spread over the old and new shares: N × (P − S) ÷ (M + N).
What happens to fractional entitlements?
Companies usually round your entitlement down and sell or aggregate the fractions. This calculator rounds the new shares down to whole shares.
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Educational estimate, not investment, trading or tax advice. Brokers, exchanges and data providers use their own conventions, fees and figures — confirm with your broker, the exchange’s documentation or a licensed adviser before acting.