A mining deal is announced and the target stock rallies 35% over the prior day's closing price for the target company , to $72.85 . (In this situation, that there were no bid rumors in the stock price leading up to the deal announcement.) Suppose the deal drags on for just over a year, and has still not closed.
Over the past year the mining sector has rallied, returning over 9 %. The beta of the target stock prior to the deal was 1.22 to its sector, and its beta since the deal announcement has been 0.25. Suppose the risk free rate is 2%. Estimate the current deal break price.