Assume that a firm has warrants outstanding that allow the holder to buy one share of stock at $22 per share. Also assume the stock is selling at $28 per share and warrants are now selling at $10 per warrant. You can invest $1,000 in the stock or the warrants. Assume the stock goes to $44 and the warrants trade at their intrinsic value when the stock is at $44. Would you have a larger total dollar profit by initially investing in the stock or the warrants? Compute the leverage.

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The Answer of Assume that a firm has warrants outstanding that allow the holder to buy one share of stock at $22 per share. Also assume the stock is selling at $28 per share and warrants are now selling at $10 per warrant. You can invest $1,000 in the stock or the warrants. Assume the stock goes to $44 and the warrants trade at their intrinsic value when the stock is at $44. Would you have a larger total dollar profit by initially investing in the stock or the warrants? Compute the leverage.

Assume That a Firm Has Warrants Outstanding That Allow the Holder