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Chapter 5: 15BP-b (page 569)

Mr. and Mrs. Anderson own two shares of Magic Tricks Corporation’s common stock. The market value of the stock is \(58. The Andersons also have \)46 in cash. They have just received word of a rights offering. One new share of stock can be purchased at $46 for each two shares currently owned (based on two rights).

b. What is the value of the Andersons’ portfolio before the rights offering? (Portfolio in this question represents stock plus cash.)

Short Answer

Expert verified

Answer

The value of the portfolio is $162.

Step by step solution

01

Information provided in the question

Subscription price = $46

Price of one share = $58

Rights required to purchase a new share = 2

02

Calculation of the value of portfolio

The value of the portfolio is $162.

Portfolio value=Stock value+Cash=$58×2+$46=$162

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