"Arbitrage" in financial management.

"Arbitrage" in financial management.

Ritik Tripathi Ritik Tripathi

Ritik Tripathi

Student at The Institute of Chartered Accountants of India

发布日期: 2024年6月11日
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Suppose there are two companies one with share and debentures as its capital(known as levered co.) and the other is having only shares as its capital(known as unlevered co. the ROI (return on investment) of levered co is 12% and ROI of unlevered co. is 10% the investor is likely to switch its investment from unlevered co. to levered co. as he is making investment for more returns. he can switch its investment bt following these steps:

  1. first, he is required to sell shares from unlevered company(suppose he gets 10000 by selling its shares from unlevered co.)
  2. second, he is required to make its investments (10000rs) in levered co in the same proportion (1:1) i.e. 5000 in debt & 5000 in equity shares
  3. now, the investor will get more return from its investment (he will earn from earning available to equity and a fixed percentage of interest% from debentures

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