a) GE stock is currently trading for $50 per share. A one-year European call option with a strike price of $55 is currently trading for $8.00. If the one-year risk-free interest rate is 5 %, what is the value of a one-year European put option on GE with a strike price of $55?
b) Explain the put-call parity concept.
c) Firm A has 3,000 shares of stock outstanding, each with a market price of $30 per share. Firm B has 2,500 shares of stock outstanding, each with a market value of $25 per share. Firm A can acquire Firm B in either cash or stock. Both firms are totally financed with equity. Total synergy from the acquisition is $10,000. What is the NPV of acquiring Firm B with cash of $28 per share?
d) Discuss the empirical evidence on the success of mergers and acquisitions. Do the bidding firms need to take care in approaching a merger deal? Explain.