Simba Inc. has warrants outstanding, which are selling at a $2 premium above intrinsic (or minimum) value. Each warrant allows its owner to purchase one share of common stock at $24. If the common stock currently sells for $29, what is the warrant price?

Question

Quizplus · Accepted Answer

The intrinsic value of the warrant is the difference between the exercise price and the market price of the stock, which is $29 - $24 = $5. Adding the $2 premium, the warrant price would be $5 + $2 = $7, which is option B.

Simba Inc Has Warrants Outstanding, Which Are Selling at a $2