If the exercise price of an M-tel warrant is $48 and the stock splits 2 for 1, what will be the post-split exercise price of the warrant? Assume the warrant was selling for $20 before the stock split.
A) $24
B) $20
C) $10
D) $48

Question

Quizplus · Accepted Answer

After the 2-for-1 stock split, the stock price will be halved to $24. Since the exercise price of the warrant is $48, it needs to be adjusted accordingly to maintain its value. So, the post-split exercise price of the warrant will be $24/2 = $12. However, the warrant was selling for $20 before the split, which means it was trading at a premium. After the split, the warrant's intrinsic value will remain the same ($24 - $48 = -$24), but its extrinsic value will decrease due to the lower exercise price. Therefore, the post-split price of the warrant is likely to be lower than $20. Choice A) is the closest option.

If the Exercise Price of an M-Tel Warrant Is $48