CORRECT TEXT
A company has announced a rights issue of 1 new share for every 4 existing shares.
Relevant data:
• The current market price per share is $10.00.
• Rights are to be issued at a 20% discount to the current price.
• The rate of return on the new funds raised is expected to be 10%.
• The rate of return on existing funds is 5%.
What is the yield-adjusted theoretical ex-rights price?
Give your answer to two decimal places.
$ ?
Answer: 11.20, 11.2