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 $1.5 per share. The value of the firm now is $200. The value of the firm next year will be either $240 when demand is high or $160 if the demand is low. The one-year interest rate is 9%.

a. What is the risk neutral probability of up movement? (sample answer: 15.60%) b. What is the market price of the stock per share now? (sample answer: $5.60) c. What is the market price of the warrant per share now? (sample answer: $5.60)