Assume you can buy a warrant for $5 that gives you the option to buy one share
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Assume you can buy a warrant for $5 that gives you the option to buy one share of common stock at $15 per share. The stock is currently selling at $18 per share.
a. What is the intrinsic (minimum) value of the warrant?
b. What is the speculative premium on the warrant?
c. If the stock rises to $27 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 bought the stock and the warrant at the prices stated above? Explain this relationship.
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Related Book For 
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
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