A warrant has an exercise price of $15. The underlying common stock has a market price of $10. The formula value of a warrant would be ____.
A) $5
B) $0
C) -$5
D) Cannot be determined from the information given

Question

Quizplus · Accepted Answer

The formula value of a warrant is calculated as the difference between the market price of the underlying stock and the exercise price of the warrant. If the market price is lower than the exercise price, as in this case ($10 market price vs. $15 exercise price), the formula value of the warrant is $0, because the warrant would not be exercised; it has no intrinsic value.

A Warrant Has an Exercise Price of $15