conceptSM_ch25

conceptSM_ch25 - CONCEPT QUESTIONS - CHAPTER 25 25.2 What...

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CONCEPT QUESTIONS - CHAPTER 25 25.2 What is the key difference between a warrant and a traded call options? When a warrant is exercised, the number of shares increases. Also, the warrant is an option sold by the firm. When an options is exercised, it is the seller of the option that must give up their shares in the company. Why does dilution occur when warrants are exercised? Because additional shares of stock are issued and sold to warrant holders at a below market price. How can the firm hurt warrant holders? The firm can hurt warrant holders by taking any action that reduces the value of the stock. A typical example would be the payment of abnormally high dividends. 25.3 How can the Black-Scholes model be used to value warrants? First, calculate the value of an identical call. The warrant price is the call price multiplied by #/(# + # w ). 25.4 What are the conversion ratio, the conversion price, and the conversion premium? The conversion ratio is the number of shares received for each debenture.
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This note was uploaded on 03/17/2009 for the course ACTSC 371 taught by Professor Wood during the Fall '08 term at Waterloo.

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conceptSM_ch25 - CONCEPT QUESTIONS - CHAPTER 25 25.2 What...

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