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It is the morning of January 2. ATR Co has agreed to purchase 100% of 20 million outstanding shares of XAY Inc for a combination of $9.3 in cash and three of its own shares for every XAY share. Immediately after the announcement, the XAY stock is trading at $38.3 per share, while the ATR stock is trading at $10.9 per share. The deal will close on July 2 - which is six months later. You have put together a merger arbitrage strategy where you purchase 8,050 XAY's shares at the current price, hedging out the ATR stock price risk, and hold them till the deal is closed - using maximum buying power. Assume that the ATR stock is trading at $8.0 when the deal closes. Your account's beginning equity is $300,000. Margin requirements are 50% on both sides. Ignore any interest, trading commissions, and borrow fees. Calculate your effective annual return on this trade if you set it up on January 2 and unwind it on July 2, immediately before the deal closes. 19.80% 20.32% 20.84% 21.36% 21.88% It is the morning of January 2. ATR Co has agreed to purchase 100% of 20 million outstanding shares of XAY Inc for a combination of $9.3 in cash and three of its own shares for every XAY share. Immediately after the announcement, the XAY stock is trading at $38.3 per share, while the ATR stock is trading at $10.9 per share. The deal will close on July 2 - which is six months later. You have put together a merger arbitrage strategy where you purchase 8,050 XAY's shares at the current price, hedging out the ATR stock price risk, and hold them till the deal is closed - using maximum buying power. Assume that the ATR stock is trading at $8.0 when the deal closes. Your account's beginning equity is $300,000. Margin requirements are 50% on both sides. Ignore any interest, trading commissions, and borrow fees. Calculate your effective annual return on this trade if you set it up on January 2 and unwind it on July 2, immediately before the deal closes. 19.80% 20.32% 20.84% 21.36% 21.88%

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