Prime Ltd. issued some warrants which allowed the holders to purchase, with one warrant, one equity share at ₹18.275 per share. The equity share was quoted at ₹25 per share and the warrant was selling at ₹9.50. In this c
CS Executive · Capital Markets & Securities Laws · PYQS · June 2016
Prime Ltd. issued some warrants which allowed the holders to purchase, with one warrant, one equity share at ₹18.275 per share. The equity share was quoted at ₹25 per share and the warrant was selling at ₹9.50. In this case, you are required to compute (i) The minimum price of warrant; and (ii) The warrant premium.
Answer & Explanation:
Computation of Minimum Price of Warrant Minimum Price = (Market Price of Equity Share - Exercise Price) * (Exercise Ratio) = (₹25 - ₹18.275) * (1.0) = ₹6.725 Computation of Warrant Premium Warrant Premium = (Market Price of warrant) - (Minimum Price of Warrant) = ₹9.50 - ₹6.725 = ₹2.775
Topics: Financial Instruments
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