21. Firm A has a stock price of \($40\), and has made an offer for firm B where A promises to pay 1.5 shares for each share of B, as long as A’s stock price remains between \($35\) and \($45\). If the price of A is below \($35\), A will pay $52.50/share, and if the price of A is above \($45\), A will pay $67.50/share. The deal is expected to close in 9 months.

Assume σ = 40%, r = 6%, and δ = 0.

a. How are the values \($52.50\) and \($67.50\) arrived at?

b. What is the value of the offer?

c. How does the value of this offer compare with that in Problem 20?