Mr. John Hailey has $1,000 to invest in the market. He is considering buying 50 shares of
Question:
Mr. John Hailey has $1,000 to invest in the market. He is considering buying 50 shares of the Comet Airlines at $20 per share. His broker suggests that he may wish to consider purchasing warrants instead. The warrants are selling for $5, and each warrant allows him to purchase one share of Comet Airlines common stock at $18 per share.
a. How many warrants can Mr. Hailey purchase for the same $1 ,000?
b. If the price of the stock goes to $30, what would be his total dollar and percentage return on the shares?
c. At the time the shares go to $30, the speculative premium on the warrant goes to zero (though the intrinsic value of the warrant goes up). What would be Mr. Hailey's total dollar and percentage return on the warrant?
d. Assuming the speculative premium remains $3.50 over the intrinsic value, how far would the price of the stock have to fall before the warrant has no value?
Common StockCommon stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Broker
A broker is someone or something that acts as an intermediary third party, managing transactions between two other entities. A broker is a person or company authorized to buy and sell stocks or other investments. They are the ones responsible for...
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Mr John Hailey a b 30 new price 20 old price 10 gain 50 shares 500 ...View the full answer
Foundations Of Financial Management
ISBN: 9781259265921
11th Canadian Edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
