Answer:
Option (C) is correct.
Explanation:
Given that,
Share of common stock (par value $5) = $20 (at a time when the stock was selling for $32)
Price paid for 2,000, $1,000 bonds with the warrants attached = $205,000
Market price of the Lake = $180,000
Market price of the warrants = $20,000
The amount allocated to the warrants should be:
= [Market price of warrants Ă· (Market price of warrants + Market price of Lake)] Ă— Price paid
= [$20,000 Ă· ($20,000 + $180,000)] Ă— $205,000
= $20,500
