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Apnex, 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 areâ successful, Apnex stock will be worth per share. If the trials areâ unsuccessful, Apnex stock will be worth per share. Suppose that the morning before the announcement isâ scheduled, Apnex shares are trading for per share. a. Based on the current shareâ price, what sort of expectations do investors seem to have about the success of theâ 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 theâ drug's promise. Wouldâ Kliner's fund be likely to profit by trading the stock in the hours prior to theâ announcement? c. Which factors would limit the ability ofâ Kliner's fund to profit on itsâ information?

Answer :

Based on the current share price, the expectation that investors seem to have about the success of the trials is that the market share seems to assess a somewhat greater than 50% chance of success.

If the hedge fund manager hires research scientists to examine the public data on the drug, Kilner's fund will likely profit, if they have better information than other investors.

Lastly, the factor that can limit the ability of Kilner's fund to profit on its information will be that the market may be illiquid and thereby no one wants to trade with them.

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