Sharp Innovations has warrants outstanding and each entitles the holder to purchase 1 share of common stock at an exercise price of $14 a share. If the current market price of the warrant is $9 and the common stock price is $22, what is the premium over the formula value for the warrants?
A) $1
B) $5
C) $8
D) $2

Question

Quizplus · Accepted Answer

The formula value of a warrant is the current stock price minus the exercise price, which is $22 - $14 = $8. The market price of the warrant is $9, so the premium over the formula value is $9 - $8 = $1.

Sharp Innovations Has Warrants Outstanding and Each Entitles the Holder