TERP stands for which term in the context of rights issues?

• A. Theoretical ex-rights price
• B. Theoretical ex price
• C. Theoretical ex-rights price
• D. The ex-rights price

Answer: (C)

In a rights issue, the theoretical price per share after the issue, assuming all new shares are taken up and the rights are embedded in the calculation, is what TERP represents. This price is called the Theoretical ex-rights price. It shows what the share price would be if the issue proceeds as planned and the new shares are added to the existing ones at the subscription price, spreading the value across all shares. The calculation uses the current market value of the existing shares and the cost of the new shares to arrive at a single price per share after dilution.

This term is used because it is a calculated, not observed, price—it's the price you would expect under the stated assumptions: full take-up and incorporation of the new capital. It helps investors assess whether exercising the rights or selling them makes sense and how the rights issue might affect the stock’s value relative to the pre-issue price.