Question
Suppose the value of ABC Corporation is now $200 and the value of the firm will be either $300 one year from today or $100
Suppose the value of ABC Corporation is now $200 and the value of the firm will be either $300 one year from today or $100 one year from today. The firm is financed with 100 shares of common stock and 100 warrants. Each warrant provides its owner with the right, but not the obligation, to purchase from the firm at t=1 one share of common stock by paying it a fixed price of $1.50. The risk free rate is 8%.
(a) What is the market price of the stock at t=0?
(b) What is the market price of the warrant at t=0?
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Taxes And Business Strategy A Planning Approach
Authors: Myron Scholes, Mark Wolfson, Merle Erickson, Michelle Hanlon
5th Edition
132752670, 978-0132752671
