Fannie Mae-No Politics (FNMA)

[FOFreddie]

UST has always valued its warrant as a multiple of the stock price on the valuation date in the Admin Budget. The UST valuation understates the correct option valuation of a zero strike option because UST does not have to finance the value of the shares covered by their warrants. This undervaluation relative to stock price is most pronounced when a stock has high long term volatility and is trading near its strike of zero.