Firm U and Firm L have the exact same assets (managed in exactly the same way)....

  

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Firm U and Firm L have the exact same assets (managed in exactly the same way). Firm U has no debt. The market value of Firm U's equity is $7500. Firm L has risk-free perpetual debt with a market value of $3000 and equity with a market value of $5000. Therefore, the market values of Firm U and Firm L are $7500 and $8000 respectively. Since these two firms do not have the same market value, you should be able to earn a true arbitrage. What are the three positions you need to take at time zero to earn a true arbitrage profit? (Use the procedures we discussed in class. Also, as in class, assume alpha = 10%. You must get all three answers correct to get credit.) Note - there are two versions of this question. In this version, Firm U's market value is less than Firm L's market value. In the other version, Firm U's market value is greater than Firm L's market value. Repeat the quiz until you get to see both versions. Pick one A. Sell short $300 of Firm L equity B. Sell short $500 of Firm L equity C. Sell short $750 of Firm U equity Enter the letter (A, B, or C) for the correct answer in the box here: Pick one D. Invest $300 into the debt of Firm L E. Borrow $300 F. Borrow $500 Enter the letter (D, E, or F) for the correct answer in the box here: Pick one G. Invest $750 into the equity of Firm U H. Invest $800 into the equity of Firm U I. Invest $500 into the equity of Firm L J. Invest $800 into the equity of Firm L Enter the letter (G, H, I, or J) for the correct answer in the box here: Firm U and Firm L have the exact same assets (managed in exactly the same way). Firm U has no debt. The market value of Firm U's equity is $7500. Firm L has risk-free perpetual debt with a market value of $3000 and equity with a market value of $5000. Therefore, the market values of Firm U and Firm L are $7500 and $8000 respectively. Since these two firms do not have the same market value, you should be able to earn a true arbitrage. What are the three positions you need to take at time zero to earn a true arbitrage profit? (Use the procedures we discussed in class. Also, as in class, assume alpha = 10%. You must get all three answers correct to get credit.) Note - there are two versions of this question. In this version, Firm U's market value is less than Firm L's market value. In the other version, Firm U's market value is greater than Firm L's market value. Repeat the quiz until you get to see both versions. Pick one A. Sell short $300 of Firm L equity B. Sell short $500 of Firm L equity C. Sell short $750 of Firm U equity Enter the letter (A, B, or C) for the correct answer in the box here: Pick one D. Invest $300 into the debt of Firm L E. Borrow $300 F. Borrow $500 Enter the letter (D, E, or F) for the correct answer in the box here: Pick one G. Invest $750 into the equity of Firm U H. Invest $800 into the equity of Firm U I. Invest $500 into the equity of Firm L J. Invest $800 into the equity of Firm L Enter the letter (G, H, I, or J) for the correct answer in the box here: