As a junior financial analyst at Houliahn Lokey, you are analyzing how the stock warrants issued by a firm will impact the value of the firm. Suppose that a firm is going to raise the capital by issuing 100 shares of stock and 100 shares of warrants. The warrants will have the right to buy the share at $3.5 per share. The value of the firm now is $400. The value of the firm next year will be either $460 when demand is high or $340 if the demand is low. The one-year interest rate is 9%.

a. What is the risk neutral probability of up movement?(sample answer: 45.48%) a. What is the market price of the stock at t=0? (sample answer: $15.45) c. What is the market price of the warrant at t=0? (sample answer: $15.45