Question

20.00 polnts The Red Ord r es ment Con any o 100 Cinema warrants one ago and we d lke e ere se them today. The ar ans were pre agad弑 s are. The exercise price 533 and eech warrant emtles the holder to p raase two seres of sock, each 81 the exercise price. at 528 eech left, ci 28 e en, and n e gire when ad ng ends to y 88s me there is no specula e premi len Cinema arp con n on stock seli ng today for S54 p a. If th션 warraros yre eooe used tode what would the Redford investment umpam s uular pro t cr loss be? Do not round in emediate calculations Input your dollar answer as a positve value rounded to the nearest whole dollar. b. What is the Redfond Investment Company's pencantage rate nhm? (Do nat round intermediate callculations. Input your answer as a percent rounded to 2 decmal places.

Answer 1

Answer (a):

Purchase cost of warrants = number of warrants * price per warrant = 100 * $28 = $2,800

Each warrant entitles the holder to two shares of stock at exercise price of $33 each.

Number of shares entitled = 100 * 2 = 200

If exercised, price to be paid =200 * $33 = $6,600

Total investment made in 200 shares = $2800 + $6600 = $9,400

Selling price of common shares = $54

Total sale value = 54 * 200 = $10,800

As such:

If warrants are exercised today dollar profit = Sale value - Investment made = 10800 -9400 = $1,400

Profit S1,400

Answer (b):

Percentage rate of return = (Sale value - Investment made) / Investment made = (10800 - 9400) / 9400 = 14.89%

Rate of return 14.89 5