Question: Suppose that Boring Unreliable Gadget Inc. has two classes of shares with different voting rights. You find that class A and class B shares are trading at $49 and $37, respectively. However, historically, the spread has been $15, and you expect the price difference to reach that level.
a. Explain how you would set up a spread trade and how much profit you expect to make once the prices correct themselves.
b. Would the preceding strategy work if class A stock goes up to $75 per share?