Why do investors tend to pay a smaller premium for a warrant as the price of the stock goes up?
Answer to relevant QuestionsWhat are the disadvantages of investing in convertible securities? A firm has warrants outstanding that allow the holder to buy one share of stock at $25 per share. Also, assume the stock is selling for $30 per share, and the warrants are now selling for $7 per warrant (this, of course, is ...Assume you bought a convertible bond two years ago for $900. The bond has a conversion ratio of 32. When the bond was purchased, the stock was selling for $25 per share. The bond pays $75 in annual interest. The stock pays ...Comment on the statement, “The novice may attempt to write the options with the highest total premium or speculative premium, while the buyer may think the smallest investment provides the greatest leverage.” In the case of American Travel in Table 14–6 on page 373: a. What is the intrinsic value of the November 32.50 call option on November 2? b. How much is the speculative premium on that date? c. By what percentage does the ...
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