The minimum theoretical value of a warrant to buy 6 shares of a firm's stock at $50 per share is $10. What is the current market price of the firm's stock?

Question

Quizplus · Accepted Answer

The minimum value of a warrant is its intrinsic value, which is calculated as the difference between the current market price of the stock and the exercise price of the warrant. 
Let x be the current market price of the stock.
The intrinsic value of the warrant = max(0, 6x - 300) = 6x - 300 if 6x - 300 > 0. 
We know that the minimum value of the warrant is $10. So, we have:
6x - 300 ≥ 10
6x ≥ 310
x ≥ 51.67
Therefore, the current market price of the stock is at least $51.67. 
Since $52.50 is the only option that is greater than or equal to $51.67, the answer is A.

The Minimum Theoretical Value of a Warrant to Buy 6