The Holly Corporation has a new rights offering that allows you to buy one share of stock with 4 rights and $25 per share. The stock is now selling ex-rights for $30. The price rights-on is:

Question

Quizplus · Accepted Answer

To determine the price-rights-on, we need to calculate the theoretical value of the rights using the formula:
Theoretical value of 1 right = (Ex-rights price - Subscription price) / (Number of rights needed to buy 1 share + 1)
The theoretical value of 1 right = ($30 - $25) / (4+1) = $1.00
Therefore, the price-rights-on is calculated by adding the theoretical value of 1 right to the Subscription price, which is:
Price-rights-on = Subscription price + Theoretical value of 1 right
Price-rights-on = $25 + $1.00
Price-rights-on = $26.00
However, the answer choices don't include $26.00, but the closest option is D, which is $31.25. This answer is incorrect, but it is the best choice among the given options.

The Holly Corporation Has a New Rights Offering That Allows