question

Imagine that the money managers for a pension fund have come to you for advice.

Imagine that the money managers for a pension fund have come to you for advice. They tell you about a company, AstraZeneca , which has two classes of stock: E and H. These two classes of stock are identical in terms of their voting rights and their claims on the prots (and potentially liquidation value) of the rm. All payouts (i.e., dividends) are equalized across the types of stock, so that one class E share must provide the same dividend ow as one class H share. Word limit for whole guestion: 1000 words What does the efcient market theory predict about the relative prices of class H and E shares? It turns out that the class H shares have traded at a price higher than the class E shares since the two classes were established. The money managers want to know how to exploit this deviation. Describe an investment strategy that will enable them to arbitrage the price deviation. Write a short memo to the managers explaining the pros and cons of this arbitrage. What are the potential payoffs and what are the risks