As the price of the underlying stock rises above the exercise price of a warrant, the investor's ability to earn larger potential return diminishes. Therefore, the warrant premium will

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As the price of the underlying stock rises above the exercise price, the warrant becomes more valuable and therefore the warrant premium generally decreases. This is because the investor can now purchase the stock at a lower price through owning the warrant, so they are not willing to pay as much for the warrant itself.

As the Price of the Underlying Stock Rises Above the Exercise