Mia's Pet Store Has Warrants That Allow the Purchase of Two

question 159

Short Answer

Mia's Pet Store has warrants that allow the purchase of two shares of its outstanding common stock at $30 per share. The common stock price per share is $33 and the market value of the warrant is $8.
(a) Calculate the theoretical value of the warrant.
(b) Calculate the market premium for the warrant.

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Definitions:

Price Controls

Government-imposed limits on the prices that can be charged for goods and services in the market.

Misallocation

The inefficient or inappropriate distribution of resources in a manner that does not maximize economic efficiency or output.

Production Cost

The total expense incurred in the manufacture of a product, including raw materials, labor, and overhead costs.

Black Market

Illegal trade of goods and services, beyond government control, where transactions typically occur “under the table” to avoid taxes or regulations.