NISM Series IX Formula Sheet
Ten formulas, what each one is for, and a worked example.
Merchant banking is mostly regulation, but corporate action and issue questions need arithmetic. You'll calculate a theoretical price after a rights or bonus issue, a valuation multiple, or the size of a green shoe.
These ten formulas cover them, with a worked rights-issue example.
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The 10 Formulas
1
Formula
Theoretical ex-rights price (TERP)
Expression
(N × Cum-rights price + n × Rights price) ÷ (N + n)
Use it for
Share price expected after a rights issue.
2
Formula
Value of a right
Expression
Cum-rights price − TERP
Use it for
What each right is worth, per existing share.
3
Formula
Ex-bonus price
Expression
Cum-bonus price × Old shares ÷ (Old shares + Bonus shares)
Use it for
Adjusted price after a bonus issue.
4
Formula
Earnings per share
Expression
Net profit for equity shareholders ÷ Weighted average shares
Use it for
Basis for P/E and issue pricing.
5
Formula
Price-earnings ratio
Expression
Market price ÷ EPS
Use it for
Comparing an issue's price with listed peers.
6
Formula
Book value per share
Expression
Net worth ÷ Shares outstanding
Use it for
Price-to-book comparisons and buyback analysis.
7
Formula
Market capitalisation
Expression
Shares outstanding × Market price
Use it for
Size of the company, and thresholds under SEBI rules.
8
Formula
Dilution
Expression
New shares issued ÷ Post-issue total shares × 100
Use it for
Effect of a fresh issue on existing holders.
9
Formula
Green shoe size
Expression
Up to 15% of the issue size
Use it for
Over-allotment the stabilising agent can make.
10
Formula
Issue size (book built)
Expression
Shares offered × Cut-off price
Use it for
Final amount raised once the price is discovered.
| # | Formula | Expression | Use it for |
|---|---|---|---|
| 1 | Theoretical ex-rights price (TERP) | (N × Cum-rights price + n × Rights price) ÷ (N + n) | Share price expected after a rights issue. |
| 2 | Value of a right | Cum-rights price − TERP | What each right is worth, per existing share. |
| 3 | Ex-bonus price | Cum-bonus price × Old shares ÷ (Old shares + Bonus shares) | Adjusted price after a bonus issue. |
| 4 | Earnings per share | Net profit for equity shareholders ÷ Weighted average shares | Basis for P/E and issue pricing. |
| 5 | Price-earnings ratio | Market price ÷ EPS | Comparing an issue's price with listed peers. |
| 6 | Book value per share | Net worth ÷ Shares outstanding | Price-to-book comparisons and buyback analysis. |
| 7 | Market capitalisation | Shares outstanding × Market price | Size of the company, and thresholds under SEBI rules. |
| 8 | Dilution | New shares issued ÷ Post-issue total shares × 100 | Effect of a fresh issue on existing holders. |
| 9 | Green shoe size | Up to 15% of the issue size | Over-allotment the stabilising agent can make. |
| 10 | Issue size (book built) | Shares offered × Cut-off price | Final amount raised once the price is discovered. |
Worked Example: Rights Issue Price
A company offers 1 right share for every 4 held, at ₹150. The share trades at ₹200 cum-rights.
- 1
Value of the enlarged holding
4 × 200 + 1 × 150 = ₹950 for 5 shares.
- 2
TERP
950 ÷ 5 = ₹190.
- 3
Value of a right
200 − 190 = ₹10 per existing share.
Free account, this exam preselected.
N and n Are Easy to Swap
In a 1-for-4 rights issue, N is 4 (existing shares) and n is 1 (new shares). Many wrong options come from reversing the ratio.
FAQs
Does a bonus issue change a company's value?expand_more
No. It capitalises reserves into share capital. The share count rises and the price adjusts down in proportion.
How big can a green shoe be?expand_more
Under SEBI's ICDR Regulations, up to 15% of the issue size.
Why use weighted average shares for EPS?expand_more
Because shares issued during the year were only outstanding for part of it.
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