Theoretical Ex-Rights Price (TERP) is a concept used to describe the theoretical market price of a stock after the completion of a rights offering. Rights offerings are used by companies to raise capital, usually through the issuance of new shares to existing shareholders. When a company launches a rights offering, shareholders receive the right to buy additional shares at a discounted price.
The TERP is of particular importance to the value of the stock. In a rights offering, the additional shares sold will result in a higher market float, causing a dilution effect. The dilution effect means that the value of each share will decrease as the market float increases proportionally.
A company can calculate the TERP by calculating the difference in the pre-offering market price of the stock and the discounted price per share that is offered in the rights issue. The difference between the two prices is referred to as the ex-rights differential or premium.
In most cases, the TERP will be lower than the pre-offering market price. This is because shareholders are offered the chance to buy more shares at a discounted price, which can lead to an increase in demand and create upward pressure on the price of the underlying stock. However, the TERP is starting at the discounted price so it will still lag behind the pre-offering price.
TERP is an important concept that needs to be considered when valuing a stock after a rights offering. The TERP will be an important indicator of the impact that the rights offering has had on the price of the stock. The TERP gives investors a good indication as to how much they should pay in order to buy shares in the company. Knowing the TERP will give investors the best chance of obtaining a fair value for their investment.
The TERP is of particular importance to the value of the stock. In a rights offering, the additional shares sold will result in a higher market float, causing a dilution effect. The dilution effect means that the value of each share will decrease as the market float increases proportionally.
A company can calculate the TERP by calculating the difference in the pre-offering market price of the stock and the discounted price per share that is offered in the rights issue. The difference between the two prices is referred to as the ex-rights differential or premium.
In most cases, the TERP will be lower than the pre-offering market price. This is because shareholders are offered the chance to buy more shares at a discounted price, which can lead to an increase in demand and create upward pressure on the price of the underlying stock. However, the TERP is starting at the discounted price so it will still lag behind the pre-offering price.
TERP is an important concept that needs to be considered when valuing a stock after a rights offering. The TERP will be an important indicator of the impact that the rights offering has had on the price of the stock. The TERP gives investors a good indication as to how much they should pay in order to buy shares in the company. Knowing the TERP will give investors the best chance of obtaining a fair value for their investment.