Conglomerate Inc. just announced that it plans to acquire Tiny Corp., by offering 0.75 shares of Conglomerate's stock for each share of Tiny Corp. After the announcement, Conglomerate's stock price is $10, and Tiny Corp's is $5. Assume that you have inside information that the acquisition will go through with 100% certainty. Which of the following describes a long-short portfolio that exploits this "arbitrage" opportunity, and the profits from it?(Multiple choice) A) Buy 100 Conglomerate Inc. shares, and short-sell 75 Tiny Corp. shares profit = $375 B) Buy 100 Tiny Corp. shares, and short-sell 75 Conglomerate Inc. shares profit = $250 C) Buy 75 Tiny Corp. shares, and short-sell 100 Conglomerate Inc. shares profit = $1000 D) Buy 100 Conglomerate Inc. shares, and short-sell 75 Tiny Corp. shares profit = $625 Please show working

Conglomerate Inc. just announced that it plans to acquire Tiny Corp., by offering 0.75 shares of Conglomerate's stock for each share of Tiny Corp. After the announcement, Conglomerate's stock price is $10, and Tiny Corp's is $5. Assume that you have inside information that the acquisition will go through with 100% certainty. Which of the following describes a long-short portfolio that exploits this "arbitrage" opportunity, and the profits from it?(Multiple choice) A) Buy 100 Conglomerate Inc. shares, and short-sell 75 Tiny Corp. shares profit = $375 B) Buy 100 Tiny Corp. shares, and short-sell 75 Conglomerate Inc. shares profit = $250 C) Buy 75 Tiny Corp. shares, and short-sell 100 Conglomerate Inc. shares profit = $1000 D) Buy 100 Conglomerate Inc. shares, and short-sell 75 Tiny Corp. shares profit = $625 Please show working

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 2Q: Two investors are evaluating General Electric’s stock for possible purchase. They agree on the...

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