4. Assume a corporation issues a 30-year bond with 30 warrants attached and a 4.8% coupon rate when market rates of interest on bonds of similar risk are 6.6%. The warrants have a strike price of $10 per share.
A) What is the implied value of each warrant is the bond is initially sold for its $1,000 par value. (4 pts)
B) What is the actual cost of debt (%) if the warrants are exercised 12 years after the bond is issued when the stock is selling for $18 per share? (5 pts.)
4. Assume a corporation issues a 30-year bond with 30 warrants attached and a 4.8% coupon rate when market rates of interest on bonds of similar risk are 6.6%. The warrants have a strike price of $10 per share.
A) What is the implied value of each warrant is the bond is initially sold for its $1,000 par value. (4 pts)
B) What is the actual cost of debt (%) if the warrants are exercised 12 years after the bond is issued when the stock is selling for $18 per share? (5 pts.)
Related questions
| A bond with 40 detachable warrants has just been offered for sale at $1,000. The bond matures in 20 years and has an annual coupon of $68. Each warrant gives the owner the right to purchase two shares of stock in the company at $58 per share. Ordinary bonds (with no warrants) of similar quality are priced to yield 8 percent. |
| What is the value of one warrant? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Value of one warrant | $ |
