The upper limit of a warrant's value is best defined as the:
A)exercise price.
B)MAX(0,Stock price − Exercise price).
C)underlying stock price.
D)MAX(0,Exercise price − Stock price).
E)MIN(0,Stock price − Exercise price).

Question

Quizplus · Accepted Answer

The upper limit of a warrant's value is the underlying stock price because a warrant gives the holder the right to purchase the company's stock at a specific price. If the stock's market price is above the exercise price, the warrant has value. However, the value of the warrant cannot exceed the actual stock price, because if it did, it would be more expensive than buying the stock directly in the market.

The Upper Limit of a Warrant's Value Is Best Defined