Question

LPM company is a furniture 5 points manufacturer having a current market price of $70 per share. Mrs. Jennifer is a warrant holder at LPM. She can purchase 1 share of stock per warrant at a price of $74. After 2 months, the stock price of LPM has fallen to $60 per share. What is Mrs. Jennifer's exercise value? *

Answer 1

Answer:

-$14 per share

Explanation:

The exercise value is the monetary value of Mrs. Jennifer's call option if she was going to exercise it. The exercise value is calculated by subtracting the current stock price from the strike price = $60 - $74 = -$14.

Since no one would exercise a stock warrant knowing that they will lose money, we can expect that Mrs. Jennifer does not exercise her call option. If she really wanted to purchase a stock from LPM it would be cheaper to buy it at its current market price.