Assume That a Firm Has Warrants Outstanding That Allow the Holder

question 3

Essay

Assume that a firm has warrants outstanding that allow the holder to buy one share of stock at $22 per share. Also assume the stock is selling at $28 per share and warrants are now selling at $10 per warrant. You can invest $1,000 in the stock or the warrants. Assume the stock goes to $44 and the warrants trade at their intrinsic value when the stock is at $44. Would you have a larger total dollar profit by initially investing in the stock or the warrants? Compute the leverage.

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Definitions:

World Trade Organization

An international organization that regulates international trade, aiming to ensure that trade flows as smoothly, predictably, and freely as possible.

Secondary groups

Large, impersonal social groups whose relationships are mostly based on specific, limited purposes or goals.

Face-to-face interaction

Direct, in-person communication or interaction between two or more people.

Specific roles

Defined functions or responsibilities assigned to individuals within a group, organization, or social structure.