Vansteelandt Distillery Inc's warrant is trading for $12.50. The warrant carries the option to purchase two shares of common stock for $50. What is the speculative premium if the stock price is $53.50?

Question

Quizplus · Accepted Answer

The intrinsic value of the warrant is:
2 x ($53.50 - $50) = $7
The cost of the warrant is $12.50 so the speculative premium is:
$12.50 - $7 = $5.50.

Vansteelandt Distillery Inc's Warrant Is Trading for $12