Jacobs Company has warrants outstanding, which are selling at a $2.50 premium above intrinsic value. Each warrant allows its owner to purchase one share of common stock at $26. If the common stock currently sells for $30, what is the warrant price?
A) $6.40
B) $6.75
C) $7.25
D) $6.50

Question

Quizplus · Accepted Answer

($30 Stock price - $26 Exercise price) × 1 share = $4.00 intrinsic value
Warrant price = $4.00 Intrinsic value + $2.50 Speculative premium
Warrant price = $6.50

Jacobs Company Has Warrants Outstanding, Which Are Selling at a $2.50