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theo owns 6 shares of stock valued at $15 a share. he receives one right per share. under the rights offer, the cost of one new share is 3 rights plus $9. what is the value of one right?

User Vmb
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Final answer:

The value of one right in Theo's stock rights offering is $2. This is calculated by subtracting the additional cash payment of $9 from the market value of the stock ($15), which gives us the total value of the 3 rights required to purchase a new share, and then dividing by 3.

Step-by-step explanation:

The student's question relates to determining the value of a right in the context of a stock rights offering. Theo has 6 shares of stock, each providing one right, and for each new share, 3 rights and an additional $9 are required. To find the value of one right, we first need to understand how much value the rights add when acquiring a new share.

In this case, a new share can be acquired with 3 rights (which Theo has from his 6 shares) plus $9. If the share is valued at $15, which is the market value, then the total cost should be equivalent to one share's value, i.e., 3 rights + $9 = $15. From this equation, we can deduce the total value of the 3 rights is $15 - $9, which equals $6.

This means the combined value of the 3 rights is $6, and thus, the value of one right is $6 divided by 3, equating to $2 per right. Therefore, each right that Theo holds is worth $2.

User Behrouz Bakhtiari
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