Unformatted text preview: s. Michaels
purchase? 706 PART 6 Special Topics in Managerial Finance b. Suppose Ms. Michaels purchased the stock, held it 1 year, and then sold it for
$60 per share. What total gain would she realize, ignoring brokerage fees and
c. Suppose Ms. Michaels purchased warrants and held them for 1 year and the
market price of the stock increased to $60 per share. Ignoring brokerage fees
and taxes, what would be her total gain if the market value of the warrants
increased to $45 and she sold out?
d. What benefit, if any, would the warrants provide? Are there any differences
in the risk of these two alternative investments? Explain.
LG5 16–18 Common stock versus warrant investment Tom Baldwin can invest $6,300 in
the common stock or the warrants of Lexington Life Insurance. The common
stock is currently selling for $30 per share. Its warrants, which provide for the
purchase of two shares of common stock at $28 per share, are currently selling
for $7. The stock is expected to rise to a market price of $32 wit...
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This document was uploaded on 01/19/2014.
- Fall '13