Quantum Inc. has warrants outstanding that allow the holder to purchase 1.5 shares of stock per warrant at $22 per share (exercise price). Thus each individual share can be purchased at $22 with the warrant. The common stock is currently selling for $29. The warrant is selling for $12.00.
a. What is the intrinsic (minimum) value of this warrant? (Do not round intermediate calculations and round your answer to 2 decimal places.)
b. What is the speculative premium on this warrant? (Do not round intermediate calculations and round your answer to 2 decimal places.)
c. What should happen to the speculative premium as the expiration date approaches?
Speculative premium should decrease.
Speculative premium should increase.
Speculative premium should not change.