What do you mean by Merger Arbitrage Spread ?
Merger Arbitrage Spread is the business strategy of trading stocks in companies that are involved in takeovers or mergers. When a merger or acquisition is announced, the target company's stock often trades at a discount to the acquisition price. This discount reflects various factors, including uncertainty about whether the deal will ultimately be completed, regulatory approvals that may be needed, and risks associated with the transaction. The merger arbitrage spread represents the potential profit an investor could make by buying the target company's stock at its current price and then selling it at the acquisition price if the deal successfully closes. Arbitrageurs, or risk arbitrageurs, seek to profit from these price disparities by taking positions in the target company's stock. Overall, merger arbitrage spread provides an opportunity for investors to profit from the price discrepancies that arise during merger and acquisition transactions.
How to Calculate Merger Arbitrage Spread?
Merger Arbitrage Spread calculator uses Merger Arbitrage Spread = Risk Premium+Risk Free Rate to calculate the Merger Arbitrage Spread, Merger Arbitrage Spread refers to the difference between the acquisition price of the shares and the market price at the time of investment. Merger Arbitrage Spread is denoted by MARS symbol.
How to calculate Merger Arbitrage Spread using this online calculator? To use this online calculator for Merger Arbitrage Spread, enter Risk Premium (RP) & Risk Free Rate (RFR) and hit the calculate button. Here is how the Merger Arbitrage Spread calculation can be explained with given input values -> 254.08 = 254+0.08.