ABC Company Ltd. had issued 2000 equity shares of ₹80 each with attachable warrant on 20th June, 2018. The warrant can be exchanged in equity in the proportion of 1:1. S, a shareholder who was allotted 200 equity shares

CS Executive · Securities Laws and Capital Markets · PYQS · December 2021
ABC Company Ltd. had issued 2000 equity shares of ₹80 each with attachable warrant on 20th June, 2018. The warrant can be exchanged in equity in the proportion of 1:1. S, a shareholder who was allotted 200 equity shares with attachable warrant on 20th June, 2018 wants to know the warrant premium if the market value of warrant is ₹18 and exercise price is ₹70. Calculate the warrant premium for S.

Answer & Explanation:

Minimum price of Warrant = (Current Market Price of equity share - Exercise Price of Warrant) = (Rs.: 80 - ₹ 70) i.e. ₹ 10 Warrant Premium = (Market Value of Warrant - Value of Warrant) = ₹ 18 - ₹ 10 = ₹ 8 For 200 Warrants of S, since Ratio is 1:1, the premium would be = 200 × ₹ 8 = ₹ 16000

Topics: Capital Market Instruments

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