On January 1st, Nike began to show serious interest in Reebok. Nike was trading at $52/share with a Beta of 1.02 and Reebok stock was trading at…

On January 1st, Nike began to show serious interest in Reebok. Nike was trading at $52/share with a Beta of 1.02 and Reebok stock was trading at $28/share with a Beta of .93. The S&P 500 had a rate of return of 14.875% as of December 31st. On March 31st, Nike was trading $50/share and Reebok was trading at $31/share. With talks between both companies increasing, the merger was to be completed on June 30th. On June 30th, Nike’s closing price was $54.875/share and Reebok closed at $32.125/share. The mean return over this period not explained by the market for both companies as of March 31st was 4.625% and 4.875% for June 30th. For both companies, calculate the effect on stock values for each period (ie March 31st and June 30th) and calculate the predicted return (normal) return for each period.

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