Question: National Motors, Inc., has warrants outstanding that allow the holder to purchase 1.5 shares of stock per warrant at $28 per share (exercise price). Thus, each individual share can be purchased at $28 with the warrant. The common stock is currently selling for $35. The warrant is selling for $14.
a. What is the intrinsic (minimum) value of this warrant?
b. What is the speculative premium on this warrant?
c. What should happen to the speculative premium as the expiration date approaches?