Outstanding warrants for the common shares of Buell Corp. have an exercise price of $1.50. The present price for Buell's shares is $2.00 per share. If Buell's shares rose by another 20% by what percentage would the value of the warrants increase by?

Question

Quizplus · Accepted Answer

The value of the warrants is determined by the difference between the current share price and the exercise price. Initially, the share price is $2.00, making the value of the warrants $0.50 ($2.00 - $1.50). If the share price increases by 20%, the new share price becomes $2.40 ($2.00 * 1.20). The new value of the warrants is $0.90 ($2.40 - $1.50). The increase in the value of the warrants is $0.40 ($0.90 - $0.50), which is an 80% increase from the initial value of $0.50 ($0.40 / $0.50).

Outstanding Warrants for the Common Shares of Buell Corp