Which contract does goldman prefer and firm t

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Reference no: EM132701971

1 . You work for Goldman Sachs who is the lead underwriter of Firm T's IPO. You need to set up the contract and Firm T has agreed to any of the three following contracts:

Contract A: $20 mill and a green provision of 15% (which matures in 1 day)
Contract B: $21mill
Contract C: $19mill +1% of the IPO price

You have estimated the price of Firm T to be 70mill and this is the IPO price. The daily volatility on the IPO day is around 40%. The risk-free rate is 0%. Use Black-Scholes to choose one contract.

a) You are indifferent
b) Contract B
c) Contract C
d) Contract A

2. You work for Goldman Sachs who is the lead underwriter of Firm T's IPO. You need to set up the contract and Firm T has agreed to any of the two following contracts:

Contract A: $19mill and firm commitment.
Contract B: $19mill and best-effort basis.

Problem 1: Which contract does Goldman prefer and Firm T?

a) Goldman: A Firm T: A
b) Goldman: B Firm T: B
c) Goldman: B Firm T: A
d) Goldman: A Firm T: B

Reference no: EM132701971

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