Question

Apnex, Inc., is a biotechnology firm that is about to announce the results of its clinical trials of a potential new cancer drug. If the trials are successful, Apnex stock will be worth $63 per share. If the trials are unsuccessful, Apnex stock will be worth $20 per share. Suppose that the morning before the announcement is scheduled, Apnex shares are trading for $51 per share. a. Based on the current share price. what sort of expectations do investors seem to have about the success of the trials? b. Suppose hedge fund manager Paul Kliner has hired several prominent research scientists to examine the public data on the drug and make their own assessment of the drug's promise. Would Kliner's fund be likely to profit by trading the stock in the hours prior to the announcement? c. Which factors would limit the ability of Kliner's fund to profit on its information? a. Based on the current share price, what sort of expectations do investors seem to have about the success of the trials? (Select the best choice below.) O A. The market seems to believe the trials will not be successful. OB. The market seems to have no clue about what will happen to the stock price. O C. The market seems to expect a 50% decline in the stock price. OD. The market seems to assess a somewhat greater than 50% chance of success.

Answer 1

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PE EPS, STOCK DIVIDEND - Microsoft Excel (Product Activation Failed) View Add-Ins Data Review - 2x = = = Σ AutoSum : A Fill 2 Sort & m Find & E V Wrap Text General s FMerce Merge & Center - Center $ -% % Alignment CD Number E E 4.0 .00 . Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles File Home Insert Page Layout Formulas % Cut Calibri 11 A A Ea Copy Paste Format Painter B I U B- A Clipboard Font PW77 Fax PU PV PW 62 Clear Filter Editing Select Cells PX PY PZ QA QB QC QD QE QE 63 64 IF WE ASSUME 50% SUCCESS CHANCES THE PRICE OF STOCK = 0.50 *63+0.50*20 = 65 41.5 66 67 NOW AS SHARES ARE TRADING AT ABOVE 41.5 D: THE MARKET SEEMS TO ASSESS A SOMEWHAT GREATER THAN 50% CHANCE OF SUCCESS. 68 a 69 70 b PAUL KLINER WOULD LIKELY YES : PROFIT, IF THEY HAVE BETTER INFORMATION THAN OTHER INVESTORS 71 THE LIMITATION TO THE FUND'S ABILITY TO PROFIT IS THAT THE MARKET MAY BE ILLIQUID - NO ONE WANTS TO TRADE IF THEY KNOW KLINER HAS BETTER INFORMATION 72 73 C 74 75 76 77 78 79 HE Rea STOCK DIV NAV HEDGE FUND ME EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS price quote HIGH LOW TARGET PRICE ferences EVA MVAL 0 140% 1 0 + B A .lll + D 31-10-2019