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Anticipatory Hedge of a Takeover Scenario: On Ju'y 1 5 , a firm has decided to begin buying up shares of Helix Technology Corporation with
Anticipatory Hedge of a Takeover Scenario: On Ju'y a firm has decided to begin buying up shares of Helix Technology Corporation with the ultimate objective of ob taining controlling interest. The acquisition will be made by purchasing lots of about shares until sufficient control is obtained. The first purchase of shares will take place on August The stock is currently worth $ and has a beta of August Current price of the stock is Current cost The stock is purchased at its current price of Cost of shares: $$ Futures Market Seprember S&P futures is at Price per contrace $ Approximate number of contraces: Since if ahould buy futures. ignore the negative sign. Buy September S&P futures is at Sell Analysis: When the shares are purchased on August they cost an additional The profit on the futures transaction is sale price of futures purchase price of futures profic on futures Thus, the hedge eliminated all of the additional cost and left a small gain. The shares end up effectively costing
Anticipatory Hedge of a Takeover
Scenario: On Ju'y a firm has decided to begin buying up shares of Helix Technology Corporation with the ultimate objective of ob
taining controlling interest. The acquisition will be made by purchasing lots of about shares until sufficient control is obtained.
The first purchase of shares will take place on August The stock is currently worth $ and has a beta of
August
Current price of the stock is
Current cost
The stock is purchased at its current price of
Cost of shares: $$
Futures Market
Seprember S&P futures is at
Price per contrace $
Approximate number of contraces:
Since if ahould buy futures. ignore the negative sign.
Buy
September S&P futures is at
Sell
Analysis: When the shares are purchased on August they cost
an additional
The profit on the futures transaction is
sale price of futures
purchase price of futures
profic on futures
Thus, the hedge eliminated all of the additional cost and left a small gain. The shares end up effectively costing
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