On March 2, 2000, 3Com, a publicly traded provider of computer networking products, sold 5% of its Palm subsidiary in an IPO. 3Com had a plan to distribute the remaining Palm shares to 3Com shareholders at a later date. Under this plan, if you owned one share of 3Com, you would receive 1.5 shares of Palm. After the trading session on the IPO day, the closing price of 3Com was $81.81, while the closing price of Palm was $95.06.

Given this information, which of the following statements isleastaccurate?

a.This episode may be considered as evidence against market efficiency.

b.Assuming the Palm price on the IPO day is fair, the fair price of 3Com should be between $81.81 and $142.59.

c.A proper arbitrage strategy involves taking a long position on 3Com, and a short position on Palm.

d.One can construct an arbitrage strategy that is risk free.

e.The price of Palm would eventually be less than the price of 3Com.