Question: Question 3 (14 points) TPC Co. issues American warrants to the existing shareholders. The conversion ratio of the warrant to buy newly issued shares

shareholders. The conversion ratio of the warrant to buy newly issued shares

Question 3 (14 points) TPC Co. issues American warrants to the existing shareholders. The conversion ratio of the warrant to buy newly issued shares is 10:5. The life of the warrant is 6 months. The current TPC stock price is THB 32 and volatility is 20%. The risk-free rate is 6% per year. TPC announces to pay a dividend in the next three (3) months. 3.1 Find the warrant price with the Binomial option pricing model. Assume two (2) time-steps and the THB 1 dividend will be paid in the next three months. (10 points) 3.2 Suppose that this option is a European option. Do you think deltas of a warrant at t=0 calculated from the Binomial option pricing model and Black-Scholes-Merton model are the same? Please clarify (you do not have to calculate the delta). (4 points)

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