Workplace reviews and discussion: 凱基證券股份有限公司

Merry Christmas

A digital platform under a listed company, Garage Entertainment, has obtained dual certification under ISO 27001 (Information Security Management) and ISO 27701 (Privacy Information Management). In 2025, the company collaborated with Taiwan Power Company to organize a charitable screening of the film Avatar, fundraising for children in a war zone. The market viewed this as an ESG event and believed that the activity might improve the company’s future cash flow and valuation.

A European call warrant with the company’s stock as the underlying asset is traded in the market. The relevant information is as follows:

The current price of the underlying stock is NT$150

The exercise price is NT$145

The market price (premium) of the warrant is NT$4.2

The conversion ratio is 10

The remaining term is 4 months

The annualized risk-free interest rate is 1.2%

The annualized volatility is 28%

No dividends are paid

A European warrant may not be exercised early; it must pass until the expiration date before it can be exercised

The scenario assumptions for the fundraising results are as follows:

If the fundraising amount is NT$3 billion, the underlying stock price immediately rises 12% on the announcement date and rises another 6% within one month.

If the fundraising amount does not reach this threshold, the stock price rises only 3% and then enters a consolidation phase.

The investor Xiaohua (a minor, with a legal representative operating through online filing) purchases 20,000 units of the warrants. A warrant transaction tax of 0.1% is imposed on both purchases and sales; commissions are not considered. After the stock price has fully reflected the second-stage increase, Xiaohua directly sells the warrants without actually exercising them.

The following standard normal distribution values are known in the Black–Scholes model:

N(d1) = 0.62

N(d2) = 0.55

The questions are as follows:

I. Use the Black–Scholes model to calculate the theoretical price (fair value) of the call warrant at the time of purchase, and determine whether the warrant is underpriced or overpriced in the market. Explain whether event-driven volatility could justify this premium.

II. Assume that the fundraising amount passes the threshold. Calculate, in order:

1. The price of the underlying stock after the announcement

2. The price of the underlying stock one month later

3. The intrinsic value of the warrant when sold

4. Whether the warrant still has time value at this point, and explain why

III. Calculate the following for the warrant at the time of purchase:

1. The effective leverage

2. The underlying stock price at the break-even point

Explain why the warrant’s leverage and time value decay as the expiration date approaches.

IV. In the successful fundraising scenario, calculate:

1. The total proceeds from selling the warrants

2. The net profit after deducting the purchase and sale transaction taxes

3. The return on investment (ROI)

Determine whether this investment constitutes an asymmetric payoff and a high-risk, high-return investment.