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Compute stock prices for ge and honeywell

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Reference no: EM131696931

Question: Suppose the following stock prices for GE and Honeywell were observed before any talk of merger between the two institutions:

Honeywell (HON) 27.80

General Electric (GE) 53.98

Also, suppose you "know" somehow that GE will offer 1.055 GE shares for each Honeywell share during any merger talks.

a. What type of "arbitrage" position would you take to benefit from this news?

b. Do you need to deposit any of your funds to take this position?

c. Do you need to and can you borrow funds for this position?

d. Is this a true arbitrage in the academic sense of the word?

e. What (if any) risks are you taking?

Reference no: EM131696931

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