As the price of the underlying stock falls below the exercise price of a warrant, the investor's ability to earn larger potential return diminishes. Therefore, the warrant premium will ________.
A) increase
B) decrease
C) remain unchanged
D) double

Question

Quizplus · Accepted Answer

As the price of the underlying stock falls below the exercise price of a warrant, the warrant becomes less valuable since the potential for a larger return diminishes. This decrease in value results in a decrease in the warrant premium. Therefore, choice B is correct.

As the Price of the Underlying Stock Falls Below the Exercise