When a firm is a target of a merger, its stock price usually goes up to...

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When a firm is a target of a merger, its stock price usually goes up to a price that is a little lower (which accounts for the probability that the merger may not go through), than the bid price of the merger. If the merger does not go through, the stock price of the target firm usually reverts back to its original price. Suppose that the bid price is $150, the original price is $100 and the current price is $125 and the riskless return is 1.1. 1. What is the probability that the merger will go through? (a) 60% (b) 40% (c) 75% (d) None of the above. 2. What is the risk-neutral probability that the merger will go through? (a) 60% (b) 40% (c) 75% (d) None of the above. 3. What is the price for a bet that pays $2.2 if the merger goes through. (a) $0.75. (b) $1. (c) $1.5. (d) $2. When a firm is a target of a merger, its stock price usually goes up to a price that is a little lower (which accounts for the probability that the merger may not go through), than the bid price of the merger. If the merger does not go through, the stock price of the target firm usually reverts back to its original price. Suppose that the bid price is $150, the original price is $100 and the current price is $125 and the riskless return is 1.1. 1. What is the probability that the merger will go through? (a) 60% (b) 40% (c) 75% (d) None of the above. 2. What is the risk-neutral probability that the merger will go through? (a) 60% (b) 40% (c) 75% (d) None of the above. 3. What is the price for a bet that pays $2.2 if the merger goes through. (a) $0.75. (b) $1. (c) $1.5. (d) $2. When a firm is a target of a merger, its stock price usually goes up to a price that is a little lower (which accounts for the probability that the merger may not go through), than the bid price of the merger. If the merger does not go through, the stock price of the target firm usually reverts back to its original price. Suppose that the bid price is $150, the original price is $100 and the current price is $125 and the riskless return is 1.1. 1. What is the probability that the merger will go through? (a) 60% (b) 40% (c) 75% (d) None of the above. 2. What is the risk-neutral probability that the merger will go through? (a) 60% (b) 40% (c) 75% (d) None of the above. 3. What is the price for a bet that pays $2.2 if the merger goes through. (a) $0.75. (b) $1. (c) $1.5. (d) $2. When a firm is a target of a merger, its stock price usually goes up to a price that is a little lower (which accounts for the probability that the merger may not go through), than the bid price of the merger. If the merger does not go through, the stock price of the target firm usually reverts back to its original price. Suppose that the bid price is $150, the original price is $100 and the current price is $125 and the riskless return is 1.1. 1. What is the probability that the merger will go through? (a) 60% (b) 40% (c) 75% (d) None of the above. 2. What is the risk-neutral probability that the merger will go through? (a) 60% (b) 40% (c) 75% (d) None of the above. 3. What is the price for a bet that pays $2.2 if the merger goes through. (a) $0.75. (b) $1. (c) $1.5. (d) $2.

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To answer the questions we need to analyze the relationship between the bid price original price current price and riskless return Lets go through eac... View the full answer