Assume you can buy a warrant for $6 that gives you the option to buy one share of common stock at $14 per share. The stock is currently selling at $18 per share.
a. What is the intrinsic value of the warrant?
b. What is the speculative premium on the warrant?
c. If the stock rises to $29 per share and the warrant sells at its theoretical value without a premium, what will be the percentage increase in the stock price and the warrant price if you buy the stock and the warrant at the prices stated here? Explain this relationship.

  • CreatedOctober 14, 2014
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