SLY purchased 10% of a potential acquisition three months prior to the launch of a bid.

These shares were purchased at a price of €90 when the market index was 1,000. At the time of the bid three months later the share price was €110, and the market index was at 1,100. The target company’s beta coefficient equaled 1.00. The bid price was €115 and there were 900,000 shares to be acquired. The risk-free rate was 5%.

(a) What was the value of the expected bid premium?

(b) Compute the profit on the pre-merger equity interest.