Peter Electric decides to raise capital to finance its future investment project via a rights offering. The company sets the subscription price at $90 per share. The number of rights for one new share is six. Suppose that the closing price before the ex-rights day and the opening price on ex-rights day are respectively $107 and $103 per share. The selling price for one right on ex-rights day is $1.5.

1. Determine the value of a right.
2. What should be the correct ex-rights price?
3. Describe how you could capture the mispricing to make an instant profit. Estimate the profit.

(13 marks)

Please show full working where appropriate, no excel please:)