Jacobs and Company has warrants outstanding

Jacobs and Company has warrants outstanding

Subject: Business    / Finance    

Question

Q1:

Jacobs and Company has warrants outstanding, which are selling at a $3 premium

above intrinsic value. Each warrant allows its owner to purchase one share of

common stock at $25. If the common stock currently sells for $28, what is the

warrant price?

(a) $6

(b) $10

(c) $12

( d) $14

Q2:

A warrant which does not expire until several years in the future provides its

owner the opportunity to buy a stock. If the stock price ri ses. the warrant will

probably sell for:

(a) Less than its intrinsic value

(b) Exactly its intrinsic value

(c) More than its intrinsic value

(d) Less than or equal to its intrinsic va lue

Q3:

A disadvantage to the investor of a convertible bond is that:

(a) The stock price may never rise above conversion price

(b) If interest rates rise, the pure bond value (floor price) will decline

(c) The interest rate on convertibles is generally one-third below the coupon

rate on straight bonds of similar risk

( d) All of these are disadvantages

Q4:

Which of the fo llowing is true about warrants?

(a) At high stock prices, the warrant premium is high

(b) A rising stock price is usually fo llowed by an increase in the price of the

warrant

(c) (a) and (b) are true

(d) None of these are true