calculate the price of the warrants The standard deviation of the annual stock r
ID: 2752914 • Letter: C
Question
calculate the price of the warrants
The standard deviation of the annual stock return is 35%, and the risk free rate is 3%.
A company has 5,000 warrants outstanding. Each warrant has the right to purchase 10 shares of the company's stock at at price of $20 per share. The warrants expire in 3 years. The company has 50,000 shares of common stock outstanding. The current stock price is $15 per share. The company has a continuously compounded dividend yield of 4%.The standard deviation of the annual stock return is 35%, and the risk free rate is 3%.
Explanation / Answer
Stock Price= 15 # Warrants issued= 5000 Strike Price= 20 # Shares outstanding= 50,000 Adjusted S = 13.76 T.Bond rate= 3.00% Adjusted K= 20 Variance= 0.1225 Expiration (in years) = 3 Annualized dividend yield= 4.00% Div. Adj. interest rate= -1.00% d1 = -0.364 N (d1) = 0.358 d2 = -0.970 N (d2) = 0.166 Value of the call = $ 1.33
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