CFK plc's current share price is 4.00. An investor is wondering whether to buy shares...
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CFK plc's current share price is 4.00. An investor is wondering whether to buy shares in CFK or warrants in the company. The warrant has duration of one year and allows the purchase of 20 CFK shares at an exercise price of 4.10. The cost of the warrant is 6.00. If the share price for CFK is 4.50 in a year's time what are the corresponding returns for buying CFK shares and warrants on CFK shares? CFK plc paid no dividend over this period.
| A. | Return on shares 12.5% Return on the option 33.3% | |
| B. | Return on shares 2.5% Return on the option 10% | |
| C. | Return on shares 2.5% Return on the option 33.3% | |
| D. | Return on shares 12.5% Return on the option: nil | |
| E. | Return on shares 12.5% Return on the option 10% |
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