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Question: 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 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 buy the stock and the warrant at the prices stated above? Explain this relationship.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92601262

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