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Technology Stocks : INTCW
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To: rd who wrote (28)1/15/1997 10:19:00 PM
From: kolo55   of 78
 
Split won't happen until after May shareholder meeting

When the stock splits, the warrant exercise price also splits. The new exercise price for March 15, 1998 expiration will be $20.875. Therefore the warrants will trade according to following formula:

Warrant price = (Stk price - $20.875) + some premium

Using the formula for the pre-split exercise price at expiration and today's closing prices we can estimate the current premium.

Warrant price = (Stk price - $41.75) + some premium
103 = (142 - 41.75) + premium
so the premium = $2.75

The premium exists for several reasons. But the two important reasons are the time value of the $41.75 for the next 15 months, and the lost dividends that the warrant holder gave up by buying warrants instead of the stock. There will be five lost dividends of 0.05, so $0.25 of the premium is due to this. This leaves $2.75 - 0.25 = $2.50 as the time value cost of the $41.75. The effective annualized interest rate is 5.0%. If the individual investor can get more than a 5% return elsewhere, and understands the leveraged nature of the warrants, then there is no good reason to buy the shares instead of the warrants.

Based on same calculations, the premium in mid-May will be $0.94 per post-split share. Therefore the differential between the stock price and the warrant price will be about $21.82, call it 21 3/4. Lets see if it happens.

Paul
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