Question
Mr. John Hailey has $800 to invest in the market. He is considering buying 80 shares of the Comet Airlines at $10 per share. His
Mr. John Hailey has $800 to invest in the market. He is considering buying 80 shares of the Comet Airlines at $10 per share. His broker suggests that he may wish to consider purchasing warrants instead. The warrants are selling for $2, and each warrant allows him to purchase one share of Comet Airlines common stock at $8 per share. a. How many warrants can Mr. Hailey purchase for the same $800? Warrants b. If the price of the stock goes to $30, what would be his total dollar and percentage return on the shares? (Round the percentage answer to 2 decimal places.) Total dollar return on the stock $ Percentage return on the stock % 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. Haileys total dollar and percentage return on the warrant? (Round the percentage answer to 2 decimal places.) Total dollar return on the warrant $ 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? (Round the final answer to 2 decimal places.) Stock price $
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started