Suppose you have just bought a warrant that entitles you to purchase two shares of common stock for $45 The market price of the common stock is $26 per share, whereas the market price of the warrant is $10 in excess of its theoretical value One year later the common stock has risen in price to $50 ...

a r 1 50 2626 962 b Theoretical value now 226 45 7 Market price no ...

Suppose you have just bought a warrant that entitles you to purchase two shares of common stock

Question:

Suppose you have just bought a warrant that entitles you to purchase two shares of for $45. The market price of the is $26 per share, whereas the market price of the warrant is $10 in excess of its theoretical value. One year later the has risen in price to $50 per share. The warrant now sells for $2 more than its theoretical value.
a. If the paid $1 in dividends for the year, what is the return on investment in the common stock?
b. What is the return on investment in the warrant?
c. Why do the two rates of return differ?
Common Stock
Common 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...