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Merger arbitrage? is a easy quant interview question on finance.
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This easy-difficulty question tests your grasp of how acquisition announcements affect target company valuations in efficient markets. It's a common warm-up in finance interviews because it probes whether you understand the interplay between deal certainty, time value of money, and market pricing.
When a company announces a fixed-price acquisition, the target's stock typically trades at a discount to the deal price rather than jumping immediately to it. The gap reflects two real-world factors: the time cost of capital (money locked up for weeks) and deal risk (the possibility the transaction fails). This question asks you to reason through what an efficient market would price in, given the deal timeline and risk-free rate.