91Ó°ÊÓ

The sort of stock most people invest in is a common stock, which represents a portion of proprietorship in a business. The common stock also comes with voting rights in expanding the potential for dividends and capital growth. A company's balance sheet in bookkeeping contains details on its common shares.

$\begin{array}{rcl}\mathit{I}\mathit{n}\mathit{t}\mathit{r}\mathit{i}\mathit{n}\mathit{s}\mathit{i}\mathit{c}\mathbf{}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}& \mathbf{=}& \left(Stockprice-Exerciseprice\right)\mathbf{×}\mathit{S}\mathit{h}\mathit{a}\mathit{r}\mathit{e}\mathit{s}\\ & \mathbf{=}& \left(\$49-\$41\right)\mathbf{×}\mathbf{2}\\ & \mathbf{=}& \mathbf{\$}\mathbf{16}\\ & & \end{array}$

$\begin{array}{rcl}\mathit{S}\mathit{p}\mathit{e}\mathit{c}\mathit{u}\mathit{l}\mathit{a}\mathit{t}\mathit{i}\mathit{v}\mathit{e}\mathbf{}\mathit{p}\mathit{r}\mathit{e}\mathit{m}\mathit{i}\mathit{u}\mathit{m}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{w}\mathit{a}\mathit{r}\mathit{r}\mathit{a}\mathit{n}\mathit{t}& \mathbf{=}& \mathit{P}\mathit{u}\mathit{r}\mathit{c}\mathit{h}\mathit{a}\mathit{s}\mathit{e}\mathbf{}\mathit{p}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\mathbf{-}\mathit{I}\mathit{n}\mathit{t}\mathit{r}\mathit{i}\mathit{n}\mathit{s}\mathit{i}\mathit{c}\mathbf{}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\\ & \mathbf{=}& \mathbf{\$}\mathbf{25}\mathbf{-}\mathbf{\$}\mathbf{16}\\ & \mathbf{=}& \mathbf{\$}\mathbf{9}\\ & & \end{array}$

Computing value of shares

$\begin{array}{rcl}\mathit{S}\mathit{h}\mathit{a}\mathit{r}\mathit{e}\mathit{s}& \mathbf{=}& \frac{\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{s}\mathbf{t}\mathbf{m}\mathbf{e}\mathbf{n}\mathbf{t}}{\mathbf{P}\mathbf{e}\mathbf{r}\mathbf{}\mathbf{s}\mathbf{h}\mathbf{a}\mathbf{r}\mathbf{e}\mathbf{}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{250}}{\mathbf{\$}\mathbf{49}}\\ & \mathbf{=}& \mathbf{46}\mathbf{}\\ & & \end{array}$

Computing total dollar profit or loss

$\begin{array}{rcl}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{d}\mathit{o}\mathit{l}\mathit{l}\mathit{a}\mathit{r}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}\mathbf{}\mathit{o}\mathit{r}\mathbf{}\mathit{l}\mathit{o}\mathit{s}\mathit{s}& \mathbf{=}& \mathit{S}\mathit{h}\mathit{a}\mathit{r}\mathit{e}\mathit{s}\mathbf{×}\left(Todayrate- Previouscommonstockrate\right)\\ & \mathbf{=}& \mathbf{\$}\mathbf{46}\mathbf{×}\left(\$59-\$49\right)\\ & \mathbf{=}& \mathbf{\$}\mathbf{460}\\ & & \end{array}$

Calculation of Intrinsic value of warrant

Calculation of proceeds from the sale

$\begin{array}{rcl}\mathit{P}\mathit{r}\mathit{o}\mathit{c}\mathit{e}\mathit{e}\mathit{d}\mathit{s}\mathbf{}\mathit{f}\mathit{r}\mathit{o}\mathit{m}\mathbf{}\mathit{s}\mathit{a}\mathit{l}\mathit{e}& \mathbf{=}& \mathit{I}\mathit{n}\mathit{t}\mathit{r}\mathit{i}\mathit{n}\mathit{s}\mathit{i}\mathit{c}\mathbf{}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{×}\mathit{W}\mathit{a}\mathit{r}\mathit{r}\mathit{a}\mathit{n}\mathit{t}\mathit{s}\\ & \mathbf{=}& \mathbf{\$}\mathbf{36}\mathbf{×}\mathbf{90}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{240}\\ & & \end{array}$

Calculation of Purchase price

$\begin{array}{rcl}\mathit{P}\mathit{u}\mathit{r}\mathit{c}\mathit{h}\mathit{a}\mathit{s}\mathit{e}\mathbf{}\mathit{p}\mathit{r}\mathit{i}\mathit{c}\mathit{e}& \mathbf{=}& \mathit{W}\mathit{a}\mathit{r}\mathit{r}\mathit{a}\mathit{n}\mathit{t}\mathit{s}\mathbf{×}\mathit{P}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\\ & \mathbf{=}& \mathbf{90}\mathbf{×}\mathbf{\$}\mathbf{25}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{250}\\ & & \end{array}$

Calculation of profit

$\begin{array}{rcl}\mathit{P}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}& \mathbf{=}& \mathit{P}\mathit{r}\mathit{o}\mathit{c}\mathit{e}\mathit{e}\mathit{d}\mathit{s}\mathbf{}\mathit{f}\mathit{r}\mathit{o}\mathit{m}\mathbf{}\mathit{s}\mathit{a}\mathit{l}\mathit{e}\mathbf{-}\mathit{P}\mathit{u}\mathit{r}\mathit{c}\mathit{h}\mathit{a}\mathit{s}\mathit{e}\mathbf{}\mathit{p}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{240}\mathbf{-}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{250}\\ & \mathbf{=}& \mathbf{\$}\mathbf{990}\\ & & \end{array}$

Calculation of return

$\begin{array}{rcl}\mathit{R}\mathit{e}\mathit{t}\mathit{u}\mathit{r}\mathit{n}& \mathbf{=}& \frac{\mathbf{P}\mathbf{r}\mathbf{o}\mathbf{f}\mathbf{i}\mathbf{t}}{\mathbf{P}\mathbf{u}\mathbf{r}\mathbf{c}\mathbf{h}\mathbf{a}\mathbf{s}\mathbf{e}\mathbf{ }\mathbf{p}\mathbf{r}\mathbf{i}\mathbf{c}\mathbf{e}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{990}}{\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{250}}\\ & \mathbf{=}& \mathbf{44}\mathbf{.}\mathbf{00}\mathbf{\%}\\ & & \end{array}$

$\begin{array}{rcl}\mathit{R}\mathit{e}\mathit{t}\mathit{u}\mathit{r}\mathit{n}& \mathbf{=}& \frac{\mathbf{P}\mathbf{r}\mathbf{o}\mathbf{f}\mathbf{i}\mathbf{t}}{\mathbf{P}\mathbf{u}\mathbf{r}\mathbf{c}\mathbf{h}\mathbf{a}\mathbf{s}\mathbf{e}\mathbf{ }\mathbf{p}\mathbf{r}\mathbf{i}\mathbf{c}\mathbf{e}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{460}}{\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{250}}\\ & \mathbf{=}& \mathbf{20}\mathbf{.}\mathbf{44}\mathbf{\%}\\ & & \end{array}$

The rate of return of the warrant while the selling price is $59 is less than the 44.00% return on the warrant.