XYZ Corp. has announced that it will take four rights to buy a new share in the offering at a subscription price of $35. At the close of business, the day before the ex- rights day, the company's stock sells for $60 per share. The next morning, you notice that the stock sells for $53 per share and the rights sell for $6 each. Are the stock and/or the rights correctly priced on the ex-rights day? Describe a transaction in which you could use these prices to create an immediate profit.

XYZ Corp. has announced that it will take four rights to buy a new share in the offering at a subscription price of $35. At the close of business, the day before the ex- rights day, the company's stock sells for $60 per share. The next morning, you notice that the stock sells for $53 per share and the rights sell for $6 each. Are the stock and/or the rights correctly priced on the ex-rights day? Describe a transaction in which you could use these prices to create an immediate profit.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The common shares of Twitter, Incorporated (TWTR) recently traded on the NYSE for $75 per share. You have employee stock options to purchase 1,000 TWTR shares for $80 per share. The options expire in three years. Assume that the annualized volatility of TWTR stock is 65 percent and that the Interest rate is 3 percent (Assume the options are European options that may only be exercised at the maturity date.) a. Is this option a call or a put? O Call O Put b. Using an option pricing calculator such as the one at erleri.com/blackscholes, estimate the value of your TWTR options. Note: Round your Intermediate calculations to 2 decimal places and final answer to nearest whole dollar. Value of your TWTR options c. What is the estimated value of the options if their maturity is six months Instead of three years? Note: Round your Intermediate calculations to 2 decimal places and final answer to nearest whole dollar. Value of the options d. What is the estimated value of the options if their…
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A trader working for a financial institution sells 200 PUT option contracts (i.e. 20,000 options) on a certain stock. At the time of the initial trade, the option price is $10, and the corresponding delta is -0.46. At time 0, the trader neutralizes the delta of the options through either the purchase/sale of shares. Over the course of the next week, the stock price moves, resulting in a new delta of -0.54. How many shares should the trader buy to maintain a delta-neutral position? If the answer requires selling/shorting shares, enter a negative number for the number of shares to purchase. (required precision 0.01 +/- 0.01)
am. 105.
As the same investor, you put in a limit order to purchase the above company at $12.00 per share at 12:00P.M. on June 15. At 3:00P.M. the stock was selling for 11¾. Was your order executed?
Wetterau, Incorporated, has announced a rights offer to raise $2.19 million. The company's stock currently sells for $77 per share, there are 165,000 shares outstanding, and one right will be granted for each outstanding share. The subscription price is set at $73 per share. What is the ex-rights price per share?
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Raghubhai
Hassinah, Incorporated, is proposing a rights offering. Presently, there are 800,000 shares outstanding at $48 each. There will be 160,000 new shares offered at $40 each. a. What is the new market value of the company? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. How many rights are associated with one of the new shares? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. What is the ex-rights price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the value of a right? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. New market value b. Number of rights needed c. Ex-rights price d. Value of a right
The common shares of Twitter, Incorporated (TWTR) recently traded on the NYSE for $69 per share. You have employee stock options to purchase 1,000 TWTR shares for $74 per share. The options expire in three years. Assume that the annualized volatility of TWTR stock is 59 percent and that the interest rate is 2.7 percent. (Assume the options are European options that may only be exercised at the maturity date.) a. Is this option a call or a put? Call ○ Put b. Using an option pricing calculator such as the one at erieri.com/blackscholes, estimate the value of your TWTR options. Note: Round your intermediate calculations to 2 decimal places and final answer to nearest whole dollar. Value of your TWTR options c. What is the estimated value of the options if their maturity is six months instead of three years? Note: Round your intermediate calculations to 2 decimal places and final answer to nearest whole dollar. Value of the options
Prahm Corp. wants to raise $4.7 million via a rights offering. The company currently has 530,000 shares of common stock outstanding that sell for $55 per share. Its underwriter has set a subscription price of $30 per share and will charge the company a spread of 6 percent. If you currently own 5,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Sale proceeds

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