Explore BrainMass

Explore BrainMass

    Warrant's Intrinsic Value calculation and Share Price

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Assume you can buy a warrant for $5 that gives you the option to buy one share of common stock at $14 per share. The stock is currently selling at $16 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 $24 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.

    © BrainMass Inc. brainmass.com March 4, 2021, 7:37 pm ad1c9bdddf
    https://brainmass.com/business/business-math/112130

    Solution Preview

    Solution:

    Warrant Price, W = $5
    Exercise Price of share, E = $14
    Number of shares, N= 1
    Market value of share M = $16

    1) Intrinsic Value of warrant (I)

    I = (M-E) X N
    = (16-14)X1
    = ...

    Solution Summary

    Solution clearly explains the Warrant's Intrinsic Value calculation and Share Price appreciation with a warrant with an example.

    $2.49

    ADVERTISEMENT