The Gifford Investment Company bought 90 Cable Corporation warrants one year ago and would like to exercise them today. The warrants were purchased at $25 each, and they expire when trading ends today. (Assume there is no speculative premium left.) Cable Corporation common stock was selling for $49 per share when Gifford Investment Company bought the warrants. The exercise price is $41, and each warrant entitles the holder to purchase two shares of stock, each at the exercise price. What was the intrinsic value of a warrant at that time? What was the speculative premium per warrant when the warrants were purchased? The purchase price, as indicated earlier, was $25. What would Gifford’s total dollar profit or loss have been had it invested the $2,250 directly in Cable Corporation’s common stock one year ago at $49 per share? Cable Corporation common stock is selling today for $59 per share. What would the percentage rate of return be on this common stock investment? Compare this to the rate of return on the warrant computed when the common stock was selling for $59 per share.
The Gifford Investment Company bought 90 Cable Corporation warrants one year ago and would like to exercise them today. The warrants were purchased at $25 each, and they expire when trading ends today. (Assume there is no speculative premium left.) Cable Corporation common stock was selling for $49 per share when Gifford Investment Company bought the warrants. The exercise price is $41, and each warrant entitles the holder to purchase two shares of stock, each at the exercise price. What was the intrinsic value of a warrant at that time? What was the speculative premium per warrant when the warrants were purchased? The purchase price, as indicated earlier, was $25. What would Gifford’s total dollar profit or loss have been had it invested the $2,250 directly in Cable Corporation’s common stock one year ago at $49 per share? Cable Corporation common stock is selling today for $59 per share. What would the percentage rate of return be on this common stock investment? Compare this to the rate of return on the warrant computed when the common stock was selling for $59 per share.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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The Gifford Investment Company bought 90 Cable Corporation warrants one year ago and would like to exercise them today. The warrants were purchased at $25 each, and they expire when trading ends today. (Assume there is no speculative premium left.) Cable Corporation common stock was selling for $49 per share when Gifford Investment Company bought the warrants. The exercise price is $41, and each warrant entitles the holder to purchase two shares of stock, each at the exercise price.
What was the intrinsic value of a warrant at that time?
What was the speculative premium per warrant when the warrants were purchased? The purchase price, as indicated earlier, was $25.
What would Gifford’s total dollar profit or loss have been had it invested the $2,250 directly in Cable Corporation’s common stock one year ago at $49 per share? Cable Corporation common stock is selling today for $59 per share.
What would the percentage rate of return be on this common stock investment? Compare this to the rate of return on the warrant computed when the common stock was selling for $59 per share.
Transcribed Image Text:Comparing returns on warrants and common stock (LO19-4)
18. The Gifford Investment Company bought go Cable Corporation warrants one year ago and would like to
exercise them today. The warrants were purchased at $25 each, and they expire when trading ends today.
(Assume there is no speculative premium left.) Cable Corporation common stock was selling for $49 per share
when Gifford Investment Company bought the warrants. The exercise price is $41, and each warrant entitles
the holder to purchase two shares of stock, each at the exercise price.
What was the intrinsic value of a warrant at that time?
What was the speculative premium per warrant when the warrants were purchased? The purchase price,
as indicated earlier, was $25.
a.
b.
C.
d.
What would Gifford's total dollar profit or loss have been had it invested the $2,250 directly in Cable
Corporation's common stock one year ago at $49 per share? Cable Corporation common stock is selling
today for $59 per share.
page 624
What would the percentage rate of return be on this common stock investment? Compare
this to the rate of return on the warrant computed when the common stock was selling for $59 per share.
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