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Rotman Commerce
William Huggins

QUALITATIVE QUESTIONS OPTIONS Why arent Americanstyle call options normally exercised before maturity Under what circumstances would you make an exception to this 4 marks In the case of a nondividend paying stock it is never optimal to exercise early If anything you should sell it back to the exchange to collect the TV as well as IV When if ever should someone consider exercising an Americanstyle put option on a nondividend paying stock before maturity4 marks If it is deep in the money and the price of the underlying is expect to rise then early exercise might be optimal What empirical fact suggests that the BlackScholes option pricing model may underestimate the price of both put and call options when they are deep in or outthemoney4marks Additional kurtosis over 3 in the empirical distribution of returns The BS model assumes a normal distributionMERGERS AND ACQUISITISIONS Synergetic Benefitseconomies of scale better market knowledge to help with expansionWhy are straight cash offers often preferred over purchases made with common stock or even combined cashstock offersThere is no risk associated with a straight cash purchase for the shareholders of the target firm and yet they capture some of the synergy value during the transactionWhy would a hostile takeover offer be more likely to misprice a target acquisition than a friendly acquisitionAsymmetrical information A friendly acquirer is provided with internal information that is not publicly known to help in making a valuationWhy are the average prices of firms with shareholder rights plans aka poison pills generally lower than those without such means to fend off hostile takeoversThese measures generally end up protecting bad managers Shareholders generally prefer to be bought out especially if someone else could manage the assets betterINVESTMENT BANKING Benefits and costs of taking a firm publicBenefits Costsaccess to capital listing requirement costs greater public visibility underwriting and distribution costs venture capitalists can cash out listing fees can reward employees with marketable stocks Explain briefly why the Ontario Securities Commission wields enormous influence over national policies governing the role of investment houses in the primary and secondary markets for common stocks Ontario has the only public stock exchanges TSXVenture Exchange so the other provincial regulators follow OSCs leadIdentify and explain briefly three major roles investment bankers play in the intermediation process between those with investable capital and those looking to pay for the use of that capital1 advisors help issuers to structure their securities in ways that will match up with the needs of those with capital2 marketing help market new securities by maintaining a strong network of institutions who have the capital available to support new issuers3 Research and market makers provide research on new and existing issues while often acting as market makers for the securities of their clients
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