The intrinsic value of a warrant is calculated as:
A) (Market price of common stock + Warrant exercise price) x Number of shares specified by warrant.
B) (Market price of common stock − Warrant exercise price) x Number of shares specified by warrant.
C) (Market price of common stock + Warrant exercise price)/Number of shares specified by warrant.
D) (Market price of common stock − Warrant exercise price)/Number of shares specified by warrant.
E) None of the above.

Question

Quizplus · Accepted Answer

The intrinsic value of a warrant is the difference between the market price of the common stock and the warrant exercise price, multiplied by the number of shares specified by the warrant. This is because the warrant gives the holder the right to purchase the common stock at the exercise price, which is typically lower than the market price. Therefore, the warrant has value if the difference between the two prices is positive. Option B accurately reflects this calculation.

The Intrinsic Value of a Warrant Is Calculated As