JP Morgan and Bear Stearns

Just a very quick post on the very interesting deal that is JP Morgan's offer to buy each Bear Stearns share for 0.05473 JPM shares.

At close on 18/03/08, JPM closed at US$42.71 (notional value of the offer is $2.338), while BSC shares closed at $5.91 (and I'm sure the hedge funds have already taken their positions to arbitrage this).

Does this really improve BSC's chances of attracting a higher bid (from JPM or someone else)?

And with Goldman Sachs, Morgan Stanley and Lehman Brothers announcing results better than or in line with expectations, will there be someone out there thinking we might be out of the woods, and the window of opportunity is slowly narrowing?

Brain teasers

Some brain teasers (along with other interview questions) kindly posted here. Apparently these are used in interview with investment banks. I have heard some get used, but most interviews I've gone to were either very technical (discuss DCF, how do you get WACC, why are AA-rated CDOs great investments for local councils with little to no sophisticated investment expertise), or very personality-based (what did you do when someone got all the credit for all your hard work? [hint: if you say "I hid his body in the river", remember to laugh]).

Anyway.

With graduate interviews coming up, here are the brain teasers and my attempt at answering them (quiet night at the office):

1. What is the present value of a zero-coupon perpetuity?
   [Ballsy answer] There are two key variables: are you selling it, and who are you selling it to.
   If you are the one tasked with selling this bond, the PV will be equivalent to the arranging fees you managed to charge the CLO into which the bond is going to be stuffed into before being on-sold to abovementioned local councils.
   If you are the buyer, and a local council as well, then simply put a "-" sign in front of the above calculation. But at least you learned that there is a high correlation between investment returns from local unemployed liars and returns from overseas unemployed liars.
   
   [Real but boring answer] Zero. A zero coupon perpetuity bond will give you zero cash flows forever. Although just the fact that you called it something fancy like a "perpetuity" would have probably been enough to sell it to some poor sap.
   

2. It’s 9:45 pm, how would you go about finding the angle between the minute and hour hand?
   [Ballsy answer] I would turn on the light, look at the clock, then point at the angle.
   
   [Real but boring answer] At 9.45pm, let's use the minute hand (pointed at "9") as the starting point. At 45 minutes, we are 3/4 of the way to 10pm, so the hour hand should be 3/4 of the way between "9" and "10". We know that the angle between hours is 30 degrees (360 degrees / 12). So the angle between the hands should be 3/4 * 30 = 22.5 degrees.
   

3. Two boats are going at 10miles/hour. They are 5 miles from one another. How long before they hit?
   [Ballsy answer] Depends on whether he chickens out.
   
   [Real but boring answer] Trick question. Which direction is each boat going?
   

4. What is the sum of all the numbers between one and one hundred?
   [Nerdy but wrong answer] 5,050. An old trick is to go (1+100) + (2+99) + (3+98) +...+ (50+51), which is basically 50 sets of 101.
   
   [Real but very correct answer] 4,949. Note the question said "between one and one hundred".
   

5. If this table was full of pennies, do you think they could stack up to measure this building?
   [Ballsy answer] Well, some guys might think their penises could stack up to measure this building, but they're delusional because none of them would even stack up to measure a ruler. Except me. [Whisper whisper.] Oh. Wait. Oh right. Sorry. I have mild dyslexia. I was telling the truth though.
   
   [Really ballsy answer] Sorry I don't know what pennies look like, can we use $100 bills instead?
   
   [Real but boring answer] Another trick question. It depends on the area of the table, how much weight it can support, and in fact how many layers of pennies does "full" mean (i.e. is covering the entire area of the table with one layer of pennies considered "full", or is it as many pennies as you can stack on the table until it buckles under).