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

To calculate the intrinsic value of a warrant, we can use the following formula:

Intrinsic value = Current stock price - Exercise price

In this case, the exercise price is $24 and the current stock price is $29, so:

Intrinsic value = $29 - $24 = $5

However, we know that the warrants are selling at a $2 premium above intrinsic value, so:

Warrant price = Intrinsic value + Premium
Warrant price = $5 + $2
Warrant price = $7

Therefore, the correct answer is B.

Simba IncHas Warrants Outstanding,which Are Selling at a $2 Premium Above