Stock price before and after the announcement
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Apex, Inc is a biotechnology firm that is about to announce the results of its clinical trials of a potential new cancer drug, If the trials were successful, Apex stock will be worth $70 per share. If the trials were unsuccessful, Apex stock will be worth $18 per share. Suppose that the morning before the announcement is scheduled, Apex shares are trading for $55 per share.
a. Based on the current share price, what sort of expectations do investors seem to have about the success of the trials?
b. Suppose hedge fund manager Paul Kliner has hired several prominent research scientists to examine the public data on the drug and make their own assessment of the drug's promise. Would Kliner's fund be likely to profit by trading the stock in the hours piror to the announcement?
c. What would limit the fund's ability to profit on its information?
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Solution Summary
The solution explains the impact on the stock price of an announcement of a new drug
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a. Based on the current share price, what sort of expectations do investors seem to have about the success of the trials?
Since the current market price is close to $70, it would imply that investors expect that the probability of ...
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