Assume that krafty foods and whole cheese have identical assets that will pay off either $200 million or $300 million a year from today. Krafty is funded with equity that has a market value of $240 million, but whole cheese is funded with bonds that mature for $220 million one year from today and with equity. The market value of whole cheese bonds is $190 million and of its equity is $40 million. If markets are perfect, what set of transactions today will generate an arbitrage profit for you?



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