The Gifford Investment Company bought 120 Cable Corporation warrants one year ago and would like to exercise them today. Thewarrants were purchased at $32 each, and they expire when trading ends today. (Assume there is no speculative premium left.) CableCorporation common stock was selling for $45 per share when Gifford Investment Company bought the warrants. The exercise price is$33, and each warrant entitles the holder to purchase two shares of stock, each at the exercise price.a. What was the intrinsic value of a warrant at the time of purchase?Note: Do not round intermediate calculations.Intrinsic valueb. What was the speculative premium per warrant when the warrants were purchased? The purchase price, as indicated earlier, was$32.Note: Do not round intermediate calculations.Speculative premiumc. What would Gifford's total dollar profit or loss have been had they invested the $3,840 directly in Cable Corporation's commonstock one year ago at $45 per share? Cable Corporation common stock is selling today for $55 per share.Note: Do not round intermediate calculations and round your answer to 2 decimal places. Input the dollar amount as a positivevalue.

Solution (a) Intrinsic value = (Stock price -Exercise price)* Stock per warraantsor Intrinsic value…

Answered: The Gifford Investment Company bought…

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

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