Explanation:
To execute a traditional merger arbitrage strategy, one would buy one share of target firm stock with proceeds from every three shares of the acquiring firm's stock sold short.
(Book 3, Module 29.2, LO 29.f)
Ultimate access to all questions.
No comments yet.
Question 68
Suppose a firm with stock currently trading at $22 a share offers three shares of its stock for one share of a target firm. The target firm's share price increases from $45 to $53 immediately following the announcement. To execute a traditional merger arbitrage strategy, which of the following sets of positions should be taken?
A
Purchase three shares of the acquiring firm’s stock and short sell one share of the target firm’s stock.
B
Purchase one share of the acquiring firm’s stock and short sell three shares of the target firm’s stock.
C
Purchase three shares of the target firm’s stock and short sell one share of the acquiring firm’s stock.
D
Purchase one share of the target firm’s stock and short sell three shares of the acquiring firm’s stock.