A firm has outstanding a bond with a 5-year maturity and maturity value of $50, convertible into 10 shares. There are also 20 shares outstanding. What is the price of the warrant? The share price? Suppose you were to compute the value of the convertible as a risk-free bond plus an option, valued using the Black-Scholes formula and the share price you computed. How accurate is this?
Answer to relevant QuestionsSuppose a firm has 20 shares of equity, a 10-year zero-coupon debt with a maturity value of $200, and warrants for 8 shares with a strike price of $25. What is the value of the debt, the share price, and the price of the ...XYZ Corp. compensates executives with 10-year European call options, granted at the money. If there is a significant drop in the share price, the company's board will reset the strike price of the options to equal the new ...Four years after the option grant, the stock price for Analog Devices was about $40. Using the same input as in the previous problem, compute the market value of the options granted in 2000, assuming that they were issued at ...Now suppose the firm finances the project by issuing debt that has higher priority than existing debt. How much must a $10 or $25 project be worth if the shareholders are willing to fund it? A mine costing $275 will produce 1 ounce of gold on the day the cost is paid. Gold volatility is zero. What is the value of the mine?
Post your question