A company announces a two-for-one rights issue giving the shareholders the right to buy new shares for 200 cents. A shareholder who owns 2,000 of the shares is convinced that the company is selling the new shares too far below the current market price of €6. He thinks that the exercise price on the rights should have been more than €4 per new share. Explain to him why the terms of the offer do not directly affect his wealth.

Illustrate with a numerical example. What indirect effect might there be on his wealth?