TERP Concept
CFA Level I glossary · CFA Level I
Definition
TERP is the theoretical ex-rights price, the value-conserving share price after a rights issue adjusts for the new shares and the capital raised. It is the weighted average of the pre-rights market price and the subscription price, weighted by old and new shares. The value of one right follows from the drop between the cum-rights price and TERP under standard formulas. Confusing TERP with the subscription price alone misses the dilution math.
TERP Concept in plain English
Think of this as a tool you reach for when a vignette gets noisy. TERP Concept shows up when the stem is testing whether you understand: TERP is the theoretical ex-rights price, the value-conserving share price after a rights issue adjusts for the new shares and the capital raised. It is the weighted average of the pre-rights market price and the subscription price, weighted by old and new shares. The value of one right follows from the drop between the cum-rights price and TERP under standard formulas. Confusing TERP with the subscription price alone misses the dilution math. When two choices both sound smart, ask which one actually performs this exact job — the wrong one usually swaps a neighboring idea from the wrong statement or time horizon.
Practice TERP Concept
Which of the following describes the 'kinked demand curve' model in an oligopoly?
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