Theoretical Ex-Rights Price (TERP)

The theoretical ex-rights price (TERP) is the value of a stock after a rights offering has been completed. It is calculated by taking the pre-offering stock price and subtracting the value of the rights. The rights represent the right to purchase additional shares of stock at a discount. The TERP is used to determine the value of a stock before the rights offering is completed.

The TERP is calculated as follows:

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TERP = Pre-offering stock price - Value of rights
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The value of the rights is calculated as follows:

```
Value of rights = (Exercise price - Pre-offering stock price) * Number of rights
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The exercise price is the price at which the rights can be exercised to purchase additional shares of stock. The number of rights is determined by dividing the number of shares that are being offered by the subscription price.

The TERP is important because it provides investors with an estimate of the value of a stock before the rights offering is completed. This information can be used to make investment decisions.

For example, if a stock is trading at $100 per share and the rights offering is for 10% of the outstanding shares at a subscription price of $90 per share, the value of the rights would be $10 ($100 - $90). The TERP would then be $90 ($100 - $10).

This information could be used by an investor to decide whether or not to participate in the rights offering. If the investor believes that the stock will be worth more than $90 after the rights offering is completed, they may want to participate in the offering. However, if the investor believes that the stock will be worth less than $90 after the rights offering is completed, they may want to sell their shares before the offering is completed.

The TERP is a useful tool for investors, but it is important to remember that it is only an estimate of the value of a stock before the rights offering is completed. The actual value of the stock may be higher or lower than the TERP.