Conglomerate Inc. just announced that it plans to acquire Tiny Corp., by offering 0.75 shares of Conglomerate's stock for each share of Tiny Corp. After the announcement, Conglomerate's stock price is $10, and Tiny Corp's is $5. Assume that you have inside information that the acquisition will go through with 100% certainty. Which of the following describes a long-short portfolio that exploits this "arbitrage" opportunity, and the profits from it?(Multiple choice) A) Buy 100 Conglomerate Inc. shares, and short-sell 75 Tiny Corp. shares profit = $375 B) Buy 100 Tiny Corp. shares, and short-sell 75 Conglomerate Inc. shares profit = $250 C) Buy 75 Tiny Corp. shares, and short-sell 100 Conglomerate Inc. shares profit = $1000 D) Buy 100 Conglomerate Inc. shares, and short-sell 75 Tiny Corp. shares profit = $625 Please show working
Conglomerate Inc. just announced that it plans to acquire Tiny Corp., by offering 0.75 shares of Conglomerate's stock for each share of Tiny Corp. After the announcement, Conglomerate's stock price is $10, and Tiny Corp's is $5. Assume that you have inside information that the acquisition will go through with 100% certainty. Which of the following describes a long-short portfolio that exploits this "arbitrage" opportunity, and the profits from it?(Multiple choice)
A) Buy 100 Conglomerate Inc. shares, and short-sell 75 Tiny Corp. shares profit = $375
B) Buy 100 Tiny Corp. shares, and short-sell 75 Conglomerate Inc. shares profit = $250
C) Buy 75 Tiny Corp. shares, and short-sell 100 Conglomerate Inc. shares profit = $1000
D) Buy 100 Conglomerate Inc. shares, and short-sell 75 Tiny Corp. shares profit = $625
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