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Eki, Inc., a producer of table lamps, has a total of 1,500,000 shares outstanding. The current...

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Finance

Eki, Inc., a producer of table lamps, has a total of 1,500,000shares outstanding. The current value of the firm is $15 million(no debt). It issues a total of 50,000 2-year warrants to its twotop executives with an exercise price of $30. If the risk-free rateis 10% and if the standard deviation of the Eki stock is 50%,compute the value (price) of each warrant if it can only beexercised on the expiration date.

Answer & Explanation Solved by verified expert
3.6 Ratings (405 Votes)
We can use the BlackScholes model to determine the value of asingle warrant as the price of call optionWe have following informationEki Inc has number of shares of common stock 1500000Number of    See Answer
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Eki, Inc., a producer of table lamps, has a total of 1,500,000shares outstanding. The current value of the firm is $15 million(no debt). It issues a total of 50,000 2-year warrants to its twotop executives with an exercise price of $30. If the risk-free rateis 10% and if the standard deviation of the Eki stock is 50%,compute the value (price) of each warrant if it can only beexercised on the expiration date.

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