A warrant has an exercise price of $40,and the current stock price is $38.An investor holding this option will purchase the stock only if the:
A) dividend yield on the stock exceeds 10%.
B) stock price falls below $38.
C) stock price rises above $40.
D) stock price falls to $20 or below.

Question

Quizplus · Accepted Answer

A warrant gives the holder the option to purchase the stock at the exercise price, in this case, $40. Since the current stock price is lower than the exercise price, it does not make sense for the investor to exercise the warrant and purchase the stock. However, if the stock price rises above $40, it would be beneficial for the investor to exercise the warrant and purchase the stock at a lower price (the exercise price). Therefore, the investor holding this option will purchase the stock only if the stock price rises above $40. Choices A, B, and D do not apply to the situation described.

A Warrant Has an Exercise Price of $40,and the Current