Associated Elk warrants have an exercise price of $40. The share price is $50. The dividend on
Question:
Associated Elk warrants have an exercise price of $40. The share price is $50. The dividend on the stock is $3, and the interest rate is 10 percent.
(a) Would you exercise your warrants now or later? State why.
(b) If the dividend increased to $5, it could pay to exercise now if the stock price has low variability and it could be better to exercise later if the stock price has high variability. Explain why.
DividendA dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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a Exercise later By exercising now you gain a dividend of 3 H...View the full answer
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Related Book For 
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
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