ABC has made the following offer to buy Genius. . In 6 months time if ABC stock price is between 40 and 50 Geniuscan exchange one of its shares for 50 dollars. If the price is below 40, however, then Genius will receive 1.25 times the share price of ABC in 6 months. On the other hand if the ABC's stock price is above 50 then IXY can exchange 1 share of Genius for the dollar price of one share of ABC.

(a)[3pts]Draw the payout diagram that shows what one share of Genius would be worth in 6 months under this proposal. Clearly indicate the axes and the values at critical points.

(b)[8pts] Explain how you would value the deal today from the perspective of an Genius shareholder. Provide significant details of all the steps that you would go through to come up with an exact number. Now assume the stock price of ABC is 45 dollars. The volatility is 28% per year. The risk free rate is 6% per year continuously compounded and the dividend yield is 2% per year continuously compounded. Value the deal.