Question: Eaton Hotel Corp. has warrants outstanding that allow the warrant holder to purchase 1.3 shares of stock per warrant at $9 per share (exercise price). The common stock is currently selling for $14.50, and the warrant is selling for $9.75.
a. What is the intrinsic (minimum value) of the warrant?
b. What is the speculative premium on this warrant?
c. If the common stock price goes up to $19 and the speculative premium goes down to $1.50, what will be the price of the warrant?