x
Info
x
Warning
x
Danger
 / 
 / 
 / 
7.Profit potential with a warrant (LO19-4) The Redford Investment Company

Question : 7.Profit potential with a warrant (LO19-4) The Redford Investment Company : 1553916

7.Profit potential with a warrant (LO19-4) The Redford Investment Company bought 100 Cinema Corp. warrants one year ago and would like to exercise them today. The warrants were purchased at $24 each, and they expire when trading ends today (assume there is no speculative premium left). Cinema Corp. common stock is selling today for $50 per share. The exercise price is $30 and each warrant entitles the holder to purchase two shares of stock, each at the exercise price.

a.If the warrants are exercised today, what would the Redford Investment Company’s dollar profit or loss be?

b.What is the Redford Investment Company’s percentage rate of return?

18.Comparing returns on warrants and common stock (LO19-4) The Gifford Investment Company bought 90 Cable Corporation warrants one year ago and would like to exercise them today. The warrants were purchased at $25 each, and they expire when trading ends today. (Assume there is no speculative premium left.) Cable Corporation common stock was selling for $49 per share when Gifford Investment Company bought the warrants. The exercise price is $41, and each warrant entitles the holder to purchase two shares of stock, each at the exercise price.

a.What was the intrinsic value of a warrant at that time?

b.What was the speculative premium per warrant when the warrants were purchased?

   The purchase price, as indicated earlier, was $25.

c.What would Gifford’s total dollar profit or loss have been had they invested the $2,250 directly in Cable Corporation’s common stock one year ago at $49 per share? Cable Corporation common stock is selling today for $59 per share.

d.What would the percentage rate of return be on this common stock investment? Compare this to the rate of return on the warrant computed when the common stock was selling for $59 per share.

Solution
5 (1 Ratings )

Solved
Finance 1 Week Ago 41 Views
This Question has Been Answered!

Related Answers
Unlimited Access Free
Explore More than 2 Million+
  • Textbook Solutions
  • Flashcards
  • Homework Answers
  • Documents
Signup for Instant Access!
Ask an Expert
Our Experts can answer your tough homework and study questions
275782 Finance Questions Answered!
Post a Question