Mr. John Hailey has $2,400 to invest in the market. He is considering the purchase of 40 shares of Comet Airlines at $60 per share. His broker suggests that he may wish to consider purchasing warrants instead. The warrants are selling for $15, and each warrant allows him to purchase one share of Comet Airlines common stock at $55 per share. a. How many warrants can Mr. Hailey purchase for the same $2,400? (Do not round intermediate calculations and round your answer to the nearest whole number.) Number of warrants purchased b. If the price of the stock goes to $80, what would be his total dollar and percentage return on the stock? (Do not round intermediate calculations. Round the first answer to the nearest whole dollar. Input the second answer as a percent rounded to 2 decimal places.) Total dollar return on the stock Percentage retum on the stock Total dollar return on the warrant Percentage retum on the warrant warrants % c. At the time the stock goes to $80, the speculative premium on the warrant goes to 0 (though the market value of the warrant goes up). What would be Mr. Hailey's total dollar and percentage returns on the warrant? (Do not round intermediate calculations. Round the first answer to the nearest whole dollar. Input the second answer as a percent rounded to 2 decimal places.) New stock price % d. Assuming that the speculative premium remains $3.50 over the intrinsic value, how far would the price of the stock have to fall from $80 before the warrant has no value? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Mr. John Hailey has $2,400 to invest in the market. He is considering the purchase of 40 shares of Comet Airlines at $60 per share. His broker suggests that he may wish to consider purchasing warrants instead. The warrants are selling for $15, and each warrant allows him to purchase one share of Comet Airlines common stock at $55 per share. a. How many warrants can Mr. Hailey purchase for the same $2,400? (Do not round intermediate calculations and round your answer to the nearest whole number.) Number of warrants purchased b. If the price of the stock goes to $80, what would be his total dollar and percentage return on the stock? (Do not round intermediate calculations. Round the first answer to the nearest whole dollar. Input the second answer as a percent rounded to 2 decimal places.) Total dollar return on the stock Percentage retum on the stock Total dollar return on the warrant Percentage retum on the warrant warrants % c. At the time the stock goes to $80, the speculative premium on the warrant goes to 0 (though the market value of the warrant goes up). What would be Mr. Hailey's total dollar and percentage returns on the warrant? (Do not round intermediate calculations. Round the first answer to the nearest whole dollar. Input the second answer as a percent rounded to 2 decimal places.) New stock price % d. Assuming that the speculative premium remains $3.50 over the intrinsic value, how far would the price of the stock have to fall from $80 before the warrant has no value? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Complete a-d please and thank you
Transcribed Image Text:Mr. John Hailey has $2,400 to invest in the market. He is considering the purchase of 40 shares of Comet Airlines at $60 per share.
His broker suggests that he may wish to consider purchasing warrants instead. The warrants are selling for $15, and each warrant
allows him to purchase one share of Comet Airlines common stock at $55 per share.
How many warrants can Mr. Hailey purchase for the same $2,400? (Do not round intermediate calculations and round your
answer to the nearest whole number.)
Graw
Mill
Number of warrants purchased
b. If the price of the stock goes to $80, what would be his total dollar and percentage return on the stock? (Do not round intermediate
calculations. Round the first answer to the nearest whole dollar. Input the second answer as a percent rounded to 2 decimal
places.)
Total dollar return on the stack
Percentage retum on the stock
Total dollar return on the warrant
Percentage retum on the warrant
warrants
2
c. At the time the stock goes to $80, the speculative premium on the warrant goes to 0 (though the market value of the warrant goes
up). What would be Mr. Hailey's total dollar and percentage returns on the warrant? (Do not round Intermediate calculations. Round
the first answer to the nearest whole dollar. Input the second answer as a percent rounded to 2 decimal places.)
New slock price
d. Assuming that the speculative premium remains $3.50 over the intrinsic value, how far would the price of the stock have to fall from
$80 before the warrant has no value? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Prev
Tot 10
Next >
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step 1: a. Calculate the warrants can be purchased as follows:
VIEWStep 2: b. Calculate the dollar return and percentage return on stock as follows:
VIEWStep 3: c. Calculate the dollar return and percentage return on warrants as follows:
VIEWStep 4: d. Calculate the fall in stock price as follows:
VIEWSolution
VIEW
Step by step
Solved in 5 steps with 7 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education