China Growth Stocks

[karins]

CNAM Option Value Using Black Scholes $0.27

I dusted off my investment book and applied the Black Scholes formula to the CNAM warrants. The formula can be simplified if there is a very high probability that the warrants will be exercised within the term of the warrants which in this case is 5 years. If there is a 100% probability, the formula equals the:
Current Stock Price - Present Value of the Exercise Price at the end of the Warrant Term. As I think that there is a high probability that the warrants will be exercised in 5 years, I think this approximation is okay to use.

Current Stock Price: $6.90 ( closing price prior to new issue)
Exercise Price: $7.50
Term in Years: 5
Risk free rate (5 year Treasury rate): 2.5%

Formula: $6.90 - PV(7.50) at end of five year = $.27