Dear valued members,

I believe the above method to calculate intrinsic value of Warrant is very complicated, I suggest we do it in a practical and easy way so that everyone can use it effectively.

Premium = ((Current Warrant price + Exercise price)/ mother share price - 1)*100%

e.g 1 - Pantech-WA
Closing price on 14/6/2013.
Pantech-WA = 0.485, Mother share (Pantech) = 0.925
Exercise price = 0.60, Expiration date = 2020

Premium = ((0.485+0.60)/0.925-1)*100% = 17.29%

Expiration date is > 1 year, premium <= 20% is acceptable according to current KLSE quotation (practical approach).
Hence buying Pantech-WA at 0.485 is considered to be a good buy (17.29% premium). 
Pantech-WA should be 0.51 if it is trading at 20% premium. Any price < 0.51 is considered as a good buy.

e.g 2 - KSL-WA
Closing price on 14/6/2013.
KSL-WA = 0.935, Mother share (KSL) = 2.18
Exercise price = 1.60, Expiration date = 19/8/2016

Premium = ((0.935+1.60)/2.18-1)*100% = 16.28%

Expiration date is > 1 year, premium <= 20% is acceptable according to current KLSE quotation (practical approach).
Hence buying KSL-WA at 0.935 is considered to be a good buy (16.28% premium). 
KSL-WA should be 1.01 if it is trading at 20% premium. Any price < 1.01 is considered as a good buy.

Note
If expiration date is < 1 year, premium paid should be <= 10%. Please take note.

I hope all students can make full use of these examples to improve your knowledge and skill. You must practise a few times in order to be good.

Thank you.
By : Ooi