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Question 4 (a) Suppose you invested $10,350 in Japfa's stock just before the market closed...

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Question 4 (a) Suppose you invested $10,350 in Japfa's stock just before the market closed on the announcement date of the rights issue. Your friend says that markets are efficient and that you are protected even if you ignore the rights issue. Evaluate his proposed option relative to the options of buying the rights shares or trading the nil-paid rights, quantitatively if applicable. (20 marks) (b) Your friend says that this rights issue does not allow you to sell the rights and that, in such a rights issue, you are essentially forced to invest more money in the stock, so exercising the rights and selling the rights are not value-equivalent options. Assess your friend's statement, quantitatively if applicable. (20 marks) (c) Another friend joins the conversation. She says that, after 31 January 2020, which is expiration date for the rights shares, if you do not exercise the rights, the value associated with the rights vanishes into thin air. Assess this other friend's statement, quantitatively if applicable. (10 marks) Questions

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