Suppose that price per share of NewOrange is currently $40, and normal risk adjusted monthly rate of return for NewOrange’s equity is 3%.

a) Suppose that the current price is efficient. Compute the expected price per share in one month
b) Now suppose that you read in the Wall Street Journal that NewOrange is a target of a pending takeover by its larger competitor. The takeover is expected to take place in one month and the acquirer is expected to offer NewOrange's shareholders a $10 premium per share at the time of the takeover. Compute the expected monthly rate of return on NewOrange if current market price remains $40
c) Suppose that market is efficient. Find the new value of the current share price of NewOrange
d) How fast must the share price adjust in order to remain efficient? Briefly describe mechanism of the adjustment
e) Now imagine that (instead of a pending takeover) new adverse developments in the international geopolitical situation makes business, in which NewOrange operates, more risky. This makes investors increase their estimate of monthly risk adjusted rate of return to 5%. Would that affect NewOrgange's share price? If "yes', how?

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a Suppose that the current price is efficient Compute the expected price per share in one month The expected price per share in one month is calculate... View the full answer