Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 26, Problem 3P
Summary Introduction
To determine: The range of possible prices based on problem 1 and 2.
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Suppose that the price of the target firm before the announcement is 42 and after the announcement it is 47. The price of the acquirer before the announcement is 75 and after it is 75. The acquirer offers to
exchange 0.707 shares of the acquirer for each share of the target at the completion of the deal. Compute the deal spread after the announcement.
The answer should be given in decimal form with three decimals. For example, write 0.105 instead of 10.5 or 10.5 % when the correct answer is 10.5 %.
A formal proposal to purchase a given number of shares of a firm's stock at a specified price is a
select one:
a.
stock purchase option.
b.
warrant.
c.
right.
d.
tender offer.
Suppose that the price of the target firm 43 is after the announcement. The acquirer's share price is 74 after the announcement, and it is 82 on the deal completion date. The acquirer offers to exchange 0.679
shares of the acquirer for each share of the target at the completion of the deal. Compute the return for a merger arbitrageur assuming that the deal is successful.
The answer should be given in decimal form with three decimals. For example, write 0.105 instead of 10.5 or 10.5 % when the correct answer is 10.5 %.
Chapter 26 Solutions
Intermediate Financial Management (MindTap Course List)
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- Explain well all point of question with proper answer.arrow_forwardYou purchased a call option on TSLA with an exercise price of $180 for a premium of $5.0 and held it until the expiration date. What is your profit (per share) if the stock sells for $192 on the expiration date? Enter your answer without the dollar sign. Your Answer: Answerarrow_forwardA ______ is an option to purchase shares of a company's common stock at a specified price during a given time period. a. warrant b. call option c. debenture d. call premiumarrow_forward
- With explaination please.............arrow_forward[The following information applies to the questions displayed below.] Similarly, we estimate the fair value of stock options at the grant date and expense it over the service period, usually from the date of grant to the vesting date. Fair value is estimated at the grant date using an option-pricing model that considers the exercise price and expected term of the option, the current market price of the underlying stock and its expected volatility, expected dividends, and the expected risk-free rate of return. Knowledge Check 01 On January 1, Year 1, Abbott Company granted 92,000 stock options to certain executives. The options are exercisable no sooner than December 31, Year 3, and expire on January 1, Year 7. Each option can be exercised to acquire one share of $1 par common stock for $14. An option-pricing model estimates the fair value of the options to be $5 on the date of grant. What is the amount of compensation expense for Year 1? Note: Round your answer to the nearest…arrow_forwardThe _____ is how much it will cost an investor to purchase a share of stock.. Single choice. Quote Ask Bid Spreadarrow_forward
- what is the terminology for the lowest price listed on a stock market exchange at which an investor is willing sell a specific stock? A- market price B- buyer price C- Ask price D- bid pricearrow_forwardAssume that Sara gets into a short European put option to sell one share of stock Y for $66 that costs $7 and is held until maturity. Under what circumstances will Sara, the seller of the option (the party with the short position), make a profit? Under what circumstances will the option be exercised (from long position perspective)? Draw a diagram illustrating how the profit from a short position in the option depends on the stock price at maturity of the option.arrow_forwardAn investor sells a European Put on a share for $4. The stock price is $47 and the strike price is $50. Under what circumstances does the investor make a profit? Under what circumstances will the option be exercised? Draw a diagram showing the variation of the investor's profit with the stock price at the maturity of the option.arrow_forward
- 22. Acovered call position is: a. the simultaneous purchase of the call and the underlying asset. b. the purchase of a share of stock with a simultaneous sale of a put on that stock. c. the short sale of a share of stock with a simultaneous sale of a call on that stock. d. the purchase of a share of stock with a simultaneous sale of a call on that sstock. e. the simultaneous purchase of a call and sale of a put on the same stock.arrow_forwardFor each of the 100-share options shown in the following table below; use the underlying stock price at expiration and other information to determine the amount of profit or loss an investor would have had. Option Type of option Cost of option Strike price per share Underlying stock price per share at expiration A Call $214 $48 $53 B Call $372 $45 $48 C Put $537 $63 $54 D Put $297 $32 $36 E Call $495 $27 $24 The profit (loss) experienced on option A is $ ? (Round to the nearest dollar. Enter a negative number for loss.)arrow_forwardSelect all that are true with respect to option valuation: Group of answer choices The holder of a call option has rights to the dividend on the underlying stock. The holder of a put option has rights to the dividend on the underlying stock. A call option on a dividend paying stock would be worth less than a call option on that same stock if it were non-dividend paying (i.e., all else is equal other than the dividend). A call option on a dividend paying stock would be worth more than a call option on that same stock if it were non-dividend paying (i.e., all else is equal other than the dividend).arrow_forward
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