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Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: Sanzen who wrote (51482)	8/3/1998 6:04:00 PM
From: Raj	Read Replies (1) \| Respond to of 61433

Here's the deal: Let x = price of ASND Let y = price of SRA Let r = interest rate for 3 months = anual_rate/4 Assume deal is 1 SRA = 0.75 ASND => y = 0.75x Then for a zero risk no arbitrage: 0.75x = 1y + ry x/y = (1+r)/.75 Lets say the margin rate is 7%. Therefore r = 0.07/4 = 0.0175 x/y = (1+0.0175)/0.75 = 1.36 1.e 1 ASND = 1.36 SRA if ASND trades at 46.8125 then SRA (risk-free) = 46.8125/1.36 = 34.42 Premium at close = 34.42 - 33.75 = 0.67 Thus for each margin rate you can compute the risk premium

To: Sanzen who wrote (51482)	8/3/1998 6:14:00 PM
From: Jan Crawley	Read Replies (1) \| Respond to of 61433

Sanzen, You comments Re-the Arbitrage gain are valid when you consider 1. time value of money 2. opportunity costs. In general, arbitrage is some what a (less reward)/(less risk) investment position. However, if you initiate the arbitrage position at the same time via your broker, the margin requirement should be much less b/c the boxing effect. In Boston View's case, if he already owns Stratus and is planning to take the profit now or upon completion of this merger; an arbitrage position would provide approx. $1 1/2 additional profit per share. I am new in this type of strategy/discussion; so feel free to correct me.