Questions 21-25 are based on the following information.

Before its IPO on 12/03/1998, Ubid was a fully-owned subsidiary of Creative Computer, which had 10,238,703 shares outstanding. In the IPO, 1,817,000 shares out of the total 9,146,883 outstanding shares of Ubid were sold to public investors. The remaining Ubid shares were expected to be distributed to the shareholders of Creative Computer after six month. On 12/09/1998, Creative Computers stock price was $22.75 and Ubids stock price was $35.6875.

Flag question: Question 21

Question 21

Because Creative Computers were undervalued relative to Ubid on 12/09/1998, Elena King wanted to buy Creative Computers and short Ubid on this date to exploit the relative mispricing and hedge the Ubid stock price risk. What should be sell-to-buy share ratio? In other words, for each share of Creative Computers that Elena bought, she needed to sell how many shares of Ubid?

Group of answer choices

1

0.8934

0.8

0.7159

Flag question: Question 22

Question 22

On 12/09/1998, Elena King established a long-short arbitrage position using the sell-to-buy ratio determined in the previous question. Suppose she only needed to minimally satisfy Reg T (i.e., 50% on margin loans and 50% margins on short selling) in the Creative Computer/Ubid long-short arbitrage. Elenas equity amount in this long-short arbitrage on 12/09/1998 would be _____.

Group of answer choices

$12.78

$17.84

$24.15

$29.21

Flag question: Question 23

Question 23

Suppose Elena established an arbitrage position on 12/09/1998. On 12/17/1998, Ubids stock close price increased from the previous $35.6875 to $42.5625 and Creative Computers stock close price increased from the previous $22.75 to $23.00. Suppose the cash posted as collateral for the short sale, the margin loan and the short proceeds were all determined on the initial trading date (12/09/1998) and did not change. However, the value of the long position, the value of the short position, and Elenas equity value in the long-short strategy adjusted to the new market prices. Ignoring the interest paid on short proceeds, collaterals, and margin loans, the Elenas equity amount in this long-short arbitrage on 12/17/1998 would be _____.

Group of answer choices

$19.48

$22.59

$30.47

$61.33

Flag question: Question 24

Question 24

Elenas 8-day investment return between 12/09/1998 and 12/17/1998 would be _____.

Group of answer choices

19.27%

0.41%

19.34%

22.66%

Flag question: Question 25

Question 25

Assuming that 25% of the long position and 30% of the short position is required for the minimum maintenance margin. Would Elena receive a margin call from her prime broker on 12/17/1998?

Group of answer choices

Yes, because Elena needed to have a minimum of $14.89 equity capital on 12/17/1998 to avoid a margin call.

Yes, because Elena needed to have a minimum of $53.47 equity capital on 12/17/1998 to avoid a margin call.

No, because Elena needed to have a minimum of $14.89 equity capital on 12/17/1998 to avoid a margin call.

No, because Elena needed to have a minimum of $53.47 equity capital on 12/17/1998 to avoid a margin call