|Topic||questiona and answers|
|Type||Online test / Quiz|
|Sources / references||0|
|Description / paper instructions
Answer the attached question
Phillip’swealthiscompletelytiedupinhiscompany’sstock,whichheowns75%ofthestock.Yearsearlier,inneedofcash,hesold25%tothepublicat$10 a share. Those shares are now selling for over $7,000 a share. Given the price of a single share, Phillips stock is worth slightly over $5 billion. Your organization,“Fredericks,Fredericks,Fredericks&Smyth”(3F&S),isaprestigesorganizationtakingintoaccountthetotalwealthoftheindividual,notjust liquidsecurities.PortfolioManagers,whenhiredaretypicallygiventheAndersonaccountbecausethereisverylittletodo.Henceamanagercangetusedto theway3F&Sworks.YouaretomeetwithMr.Andersononaquarterlybasis,receiveinstructions,andthankhimforhiscontinuedpatronage.
Your firm has been trying to get him to diversify but has not been successful. Going to your first meeting you wonder if you should even bring it up. As you sit down at the meeting, Phillip comes in and introduces himself. He asks that anything said at the meeting be said in strict confidence. You say “Of course”.
Philip starts by saying he is tired and wants to settle down and start a family. He wants to go back to his roots, and buy some farmland, grow some crops, get some cattle, raise chickens, pigs, find himself a wife and have some kids. While he is talking he takes out a small device, points it at you, and suddenly you feel a tingling all over your skin. It stops and he says “I don’t like germs, just wanted to make sure you were harmless.” You realize you have been Ionized.
Phillipcontinuesandsayshewillretirefromhisbusinessandwantstosell50%ofhisshares,butwantstodoitwithoutlosingvalue.Herealizesthathis stockissellingatanall-timehigh,partlybecausetherearefewsharesavailable.Sellingshareswouldcertainlycausethesharestodropinprice.More importantly,announcinghisretirementwillcausethestocktoplummetsinceheisseenastheprimaryinnovatorandvisionaryofAndersonIndustries.
Hesaidheisnotagainstsellingthecompanybuthewantstomaintainsomeinvolvement,sohethinkshiringmanagementandsellingthefirmtothepublic isthebeststrategy.HecontinuesandsaysperhapseverysixmonthsIcansellsomeshares,maybe10%,andin2½yearsI’llbewhereIwanttobe.Further morehehaspurchasedafewassetsincludinganoriginal1956FerrariEnzo,anexactreplicaofa1917BritishSopwithCamelbiplane,astillworkingJapanese builttwo-mansubmarinefromWorldWarII,andasouthPacificArchipelagocomprisingover300squaremilesand26islands.TheArchipelagoisnowlisted onworldmapsastheAndersonArchipelagoandwaspurchasedfromtheSultanofBruneifor$150millionandacaseofIonizers.Phillipthrewinlifetime replenishments.Heusedhissharesascollateralforover$300millioninloans.Hewouldwantsomeliquidityimmediatelytopayofftheloans.“Oh,yea,I shouldtellyou”Hesaysquickly,“Wearegoingtodoublethedividendandmaintainitsincrease.SothisDecembertherewillbeadditionalincometothe portfolio.”
He asks how to sell his shares over a 2 ½ year period at the price it is today and create some liquidity as well? You say to him what he has always said when interviewed, “If you can imagine it, then it can be done.” Then you think “Oh no, what have I gotten myself into?”
The stock is not option-able. But OTC options can be negotiated with your trading desk. If your solution includes options than pricing must be obtained to determine profitability.You willneedtodothisusing theBlackScholesmodelprovided.ForvolatilityutilizetheNasdaq100asaproxy.AnETFisavailable withthesymbolQQQQ.OptionsontheQQQQhasimpliedvolatilitycalculated.
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