Calculate the predicted return for each period

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Reference no: EM1350195

On January 1st, Joes company began to show serious interest in Toms Company. Joes was trading at $52/ share with a beta of 1.02 and Toms stock was trading at $28/ share with a Beta of .93. The S&P 500 had a return of 14.875 as of December 31st. On March 31st, Joes was trading $50/ share and Toms was trading for $31/ share, with talks between both companies increasing, the merger was to be completed on June 30th. On June 30th, Joes closing price was $54.875/ share and Toms closed at $32.125/ share. The mean return over this period not explained by the market for both companies as of March 31st was 4.625% and 4.875% for June 30th. For both companies, calculate the effect on stock values for each period (ie March 31st and June 30th) and calculate the predicted return (normal) return for each period.

Reference no: EM1350195


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