The minimum theoretical value of a warrant to buy 6 shares of a firm's stock at $50 per share is $10.What is the current market price of the firm's stock?

Question

Quizplus · Accepted Answer

The minimum theoretical value of a warrant is calculated by adding the current price of the stock with the discounted price of the warrant (which is $10).

Let's assume the current market price of the stock is x. Then, the minimum theoretical value of the warrant can be written as:

minimum theoretical value = x + $10/6

or

x = 6(minimum theoretical value - $10)/6 = minimum theoretical value - $1.67

So, if the minimum theoretical value of the warrant is $10, then the current market price of the stock is $10 + $1.67 = $11.67 per share.

Therefore, the best choice is A) $51.67, as this is the closest answer to $11.67 multiplied by the six shares that the warrant allows to buy.

The Minimum Theoretical Value of a Warrant to Buy 6