Gateway Ltd has a capital structure consisting of 5 million shares of equity and

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Gateway Ltd has a capital structure consisting of 5 million shares of equity and 500,000 warrants. Each warrant gives its owner the right to purchase two shares of newly issued equity for an exercise price of 25. The warrants are European, and will expire two years from today. The market value of the companys assets is 130 million, and the annual variance of the returns on the firms assets is 0.25. Treasury bills that mature in one year yield a continuously compounded interest rate of 7%. The company does not pay a dividend. Use the Black-Scholes model to determine the value of a single warrant.

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