Final answer:
To determine the value of a right when North stock sells for $65 rights-on with a subscription price of $55, requiring nine rights for one share, the value of a right is found to be approximately $1.11.
Step-by-step explanation:
To calculate the value of a right when North stock sells for $65 rights-on and the subscription price is $55, with nine rights needed to purchase one share, we start by determining the ex-rights price. This price can be found using the formula:
Ex-rights price = [(Rights-on Price × Number of Rights) + Subscription Price] / (Number of Rights + 1)
By plugging the given values into the formula:
Ex-rights price = [(65 × 9) + 55] / (9 + 1) = 650 / 10 = $65
To find the value of one right, we subtract the subscription price from the ex-rights price and then divide by the number of rights:
Value of one right = (Ex-rights price - Subscription Price) / Number of Rights
Value of one right = (65 - 55) / 9 = 10 / 9 ≈ $1.11
The value of one right is approximately $1.11.