A large manufacturing company has offered to purchase Composites, Inc. for $32 per share. Before...
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A large manufacturing company has offered to purchase Composites, Inc. for $32 per share. Before the merger proposal announcement, Composites was trading at $20/share and after the announcement, its share price jumped up to $28/share. It is estimated that if the merger fails to go through the price of Composites will drop to $15/share. a) Assuming that the risk-free interest rate is 0%, how would you describe along position in Composites as a combination of positions in a risk-free bond and a binary put option? Please show your workings in detial. b) Assuming that the risk-free interest rate is 0%, how would you describe a long position in Composites as a combination of positions in a risk-free bond and a binary cal option? Please show your workings in detial. c) Please explain the event-driven strategies through the selling insurance view
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