Calculate the implied price of each warrant for each of the bonds shown in the following table.
Question:
Calculate the implied price of each warrant for each of the bonds shown in the following table.
Price of bond with warrants attached Coupon interest rate laterest rate on equal-risk straight bond Number of warrants attached to hond Years to maturity 15 10 Bond Par value $1,000 1,000 500 1,000 (paid annually) $1,000 1,100 12 % 13% 12 10 30 9.5 500 1,000 10 12 20 20
Step by Step Answer:
Implied price of all warrants price of bond with warrants st...View the full answer
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
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