Leveraged buyout
What is an LBO (leveraged buyout)? Explain the risks and the potential rewards for the equity investors.
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A leveraged buyout is defined as a purchase of a publicly owned corporation by a small group of investors by means of a huge amount of borrowed money. The risks for the equity investors are mainly those that will occur whenever a high degree of financial leverage will be present. So are the rewards, in this case small returns turn out to be large returns because of leverage.
Suppose today's settlement price on a CME DM futures contract is $0.6080/DM. You have a short position in one contract. Your margin account presently has a balance of $1,700. The next three days' settlement prices are $0.6066, $0.6073, & $0.5989. Compu
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