Chapter 19, Problem 18P

a.

Summary Introduction

To calculate: The intrinsic value of the warrant for Gifford Investment Company.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

b.

Summary Introduction

To calculate: The speculative premium per warrant for Gifford Investment Company when warrants were purchased.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

c.

Summary Introduction

To calculate: The total dollar profit and loss of the Gifford Investment Company, if $2,250 is invested in Cable’s Corporation common stock.

Introduction:

Profit or loss:

It refers to the gain or loss arising from the commercial transactions during a specified period of time and is used to assess the company’s financial performance.

d.

Summary Introduction

To calculate: The rate of return on common stock investment of Gifford Investment Company. Also, compare it with the rate of return on warrant when the selling price of common stock is $59.

Introduction:

Rate of return (ROR):

A rate that shows the net profit or loss, an investor earns or loses on the investment over a particular time period is termed as the rate of return.