1) Jin R i Corporation is planning to raise $35m through the sale of new common stock under a rights offering. The subscription price is $70 per share while the stock currently sells for $82 per share, rights on. Total outstanding shares equals 10m. Of this amount Annie Joss owns 100,000.
A. How many shares will each right permit its owner to purchase?
B. What will be the total value of Annie's rights a day before the ex-rights date, assuming the market price of St. Paul stock remains at $82?
C. What is the price of the stock immediately after it starts trading ex-rights assuming the stock is worth $82?
2) Assume you can buy a warrant for $5 that gives you the option to buy one share of common stock at $14 per share. The stock is currently selling for $16 per share.
A. What is the intrinsic value of the warrant?
B. What is the speculative premium on the warrant?
C. If the stock rises to $24 per share and the warrant sells at its intrinsic value (without a premium), what will be the percentage increase in both the stock price and the warrant price? (assume you purchased the stock for $16 and the warrant for $5) Which offers you the greater return?