Solved: How far would the price of the stock have to fall, Finance Basics

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How far would the price of the stock have to fall

Problem:

Mr. John Hailey has $1000 to invest in the market. He is considering buying 50 shares of Comet Airlines at $20 per share. His broker suggests that he may wish to consider purchasing warrants instead. The warrants are selling for $5, and each warrant allows him to purchase one share of comet Airlines common stock at $18 per share.

Assuming the speculative premium remains $3.50 over the intrinsic value, how far would the price of the stock have to fall before the warrant has no value?

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Finance Basics: How far would the price of the stock have to fall

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