graph TD;
	    A[Number of Shares before Issue] --> B[Price Before Issue]
	    B --> C[Total Market Value]
	    A1[New Shares Offered] --> B1[Price of New Shares]
	    C1[Total Market Value After Issue] --> C2[New Total Number of Shares]
	    TERP["TERP Calculation"] --> C1/C2

## What does TERP stand for? - [x] Theoretical Ex-Rights Price - [ ] Total Equity Return Price - [ ] Temporary Ex-Rights Price - [ ] Theoretical Equity Redemption Price > **Explanation:** TERP stands for Theoretical Ex-Rights Price, which indicates the market price of a stock after a new rights issue is completed. ## If a company announces a rights issue at a discount, what is likely to happen to the TERP? - [x] It will generally decrease - [ ] It will increase - [ ] It will remain unchanged - [ ] It will double > **Explanation:** When a rights issue is announced at a discount, the TERP usually decreases due to the increase in the number of shares outstanding at a lower price. ## What effect does a rights issue have on pre-existing shares? - [ ] It increases share value - [x] It dilutes their value - [ ] It guarantees dividends - [ ] It converts them to preferred shares > **Explanation:** A rights issue can dilute the value of existing shares, as the total number of shares increases without a corresponding increase in company assets. ## How does a rights issue impact investor sentiment? - [ ] It always increases confidence - [x] It can cause mixed reactions depending on the discount - [ ] It has no effect on sentiment - [ ] It guarantees future share growth > **Explanation:** A rights issue may produce mixed investor sentiment; some may see it as a necessary funding move, while others may view the dilution negatively. ## What is a common reason for a company to issue rights? - [x] To raise capital for expansion - [ ] To reduce debt - [ ] To increase dividends - [ ] To facilitate a merger > **Explanation:** Companies typically issue rights to raise capital, often for expansion, paying off debt, or funding new projects. ## Rights issues typically lead to what effect on stock prices post-issue? - [ ] An increase in prices - [x] A price drop due to dilution - [ ] Stabilization at original levels - [ ] Instant skyrocket in value > **Explanation:** Following a rights issue, stock prices often drop due to the increased supply of shares, which dilutes existing shareholder value. ## The TERP is calculated based on the weighted average price of all shares post-issue. True or False? - [x] True - [ ] False > **Explanation:** The TERP is indeed calculated as a weighted average of the prices of the existing shares and the new shares offered at the discounted price. ## If a company issues one new share for every three shares held at a lower price, what happens to current shareholders? - [x] They can buy more shares at a discount - [ ] They lose their voting rights - [ ] They gain additional ownership without buying - [ ] Their shares automatically double > **Explanation:** Current shareholders have the option to buy more discounted shares, although their existing ownership percentage may be diluted if they do not participate. ## When should investors be especially cautious regarding rights issues? - [x] When the company has consistently shown poor performance - [ ] When the stock price is at an all-time high - [ ] When dividend payments increase - [ ] When buybacks are announced > **Explanation:** Caution is prudent for rights issues in struggling companies, as they might indicate a need for unfettered financial support rather than solid growth prospects. ## Upon completion of a rights offering, should investors do immediate research on the company? - [ ] No, it's a waste of time. - [x] Yes, to see how it will affect overall ownership and future value. - [ ] Only if they are greedy. - [ ] Not unless they get a discount on the shares. > **Explanation:** After a rights offering, thorough research is vital to understand its implications on overall ownership and future stock value before deciding on further investment.