In this workouts we're told Blue in has announced an agreed takeover of green ink.

The deal terms are as follows.

For every one share of green US shareholders will be entitled two $80 of cash and 0.354 shares of blue us.

The deal is expected to close in 160 days, and during that time, blue US is expected to pay a dividend of $1 35.

So unfortunately, we won't receive that because we won't be a blue shareholder in that time.

And green has announced a dividend of 45 cents.

We will receive that because we'll still be a green shareholder during that time.

Fantastic. So if we go down to part one, it says follow the steps below to value this cash and shares deal and determine the current spread or rate of return available.

So the first way, as a green shareholder, the first way we're going to be paid is with $80 of cash. Fantastic. So that was easy.

But the other component that we're going to receive is shares in blue and we'll receive 0.354 blue shares per one green share.

So we need to decide on which blue US price we're going to use here.

We're going to take the blue US figure of 88.34.

Now during the 160 days until the announcement blue is going to pay a dividend, unfortunately we're not going to receive that.

We will still be green shareholders at that time.

So the value of the share components is going to be the 88.34 minus the 1 35. We're not gonna receive. So that's the value per one share.

We are only receiving 0.354 shares per one green share.

So the value of the share components is $30 and 79 cents.

However, there is a third components we're going to receive.

We're going to receive the dividend in green.

So the total value of the deal is the $80 in cash plus the $30 79 of the share components, plus the 45 cents green dividends giving us a total value of $111 and 24 cents.

Let's compare that to the current price of a green US share.

That's the 106.72.

We can then work out the discount. The deal value.

That 106 is definitely below the 111. So it's a discount.

So one minus the other.

We've got a discount of $4 and 52 cents in terms of percentages.

Take that discount, divide it by the 106.72, gets me a discount of 4.24%.

That's the beginning of our rate of return.

However, we know that the deal is going to happen in 160 days time.

So I want to calculate that 160 divided by 3 6 5 0 0.44 of a year.

So now I can calculate the annualized rate of return.

I take that return of 4.24%, divide it by the 0.44 years.

That gives me an annualized rate return of 9.67% rate.

Let's scroll down to part two.

It says you are head of execution at a special situation. Hedge fund, you have $2 billion assets under management or a UM.

Your CEO would like to set up the green trade.

The position size will be 5% of assets under management, it's quite large.

How many shares of the target company do you trade and how many shares of the acquiring company do you trade? Well, let's a quick think.

The current share price of a green share is $106.

We think it's gonna go up to $111.

So we want to be long green shares. So that's what we've written here. Shares green US required long.

However, I'm a bit nervous and so I want to hedge by shorting blue shares.

Let's just have a quick think about this.

If blue shares go down in value, oh dear, that will reduce the consideration paid to the green shareholders.

So I'd be very sad if the blue shares went down in value because my green shares would be worth less.

However, if I short blue shares as well, then I'll be a little bit happy that the blue shares have gone down in value and the two offsetting positions will naturally hedge each other.

So what position of green US is required in US dollars Of the 2 billion assets under management, we're going to have a position of 5%.

So we're going to have $100 million of green.

The current green share price that we're looking at is $106 and 72 cents.

Let's go grab that. There we go.

So the number of shares I need to buy a hundred million divided by price per one share gets me 937,031 shares.

Now that's given me a weird decimal place.

I'd like to round that number down.

So I'm gonna put the round down function at the beginning, decide on zero decimal places.

Now I've got an exact number. Great.

The deal terms ratio said that we were going to have 0.354 blue shares per one green share.

Well, I've just gone long. 937,000 green shares.

I need to now short that position with blue shares.

So I take the green shares, multiply it by the deal term ratio.

The shares in blue us that are required to go short is 331,709.