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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?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92266610

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