Question
21. Company A is planning on merging with Company B in 6 months, with B purchasing A stock at $100/share. Currently A is selling for
21. Company A is planning on merging with Company B in 6 months, with B purchasing A stock at $100/share. Currently A is selling for $95. You want to purchase A stock, but due to legal regulations you cant. Instead, you get a swap with Swiss Bank. You pay Swiss Bank the T-Bill rate plus 3% on $20 million for six months, and any losses Stock A has. In exchange, you get the payments from 1,000,000 shares of stock A. Over the time of the Swap, the T-Bill rate is 2%. The merger is blocked by the government and Company As stock goes from $95 to $80 and pays $1.00 dividends per share. How much do you make/lose in this transaction?
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