A bond with 20 detachable warrants has just been offered for sale at $1,000. The bond matures
Question:
A bond with 20 detachable warrants has just been offered for sale at $1,000. The bond matures in 20 years and has an annual coupon of $18. Each warrant gives the owner the right to purchase two shares of stock in the company at $45 per share. Ordinary bonds (with no warrants) of similar quality are priced to yield 5 percent. What is the value of one warrant?
Step by Step Answer:
27 50 Cal culation The value of one warrant is the ...View the full answer
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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.
Students also viewed these Business questions
-
Calculating Warrant Values A bond with 20 detachable warrants has just been offered for sale at $1,000. The bond matures in 15 years and has an annual coupon of $105. Each warrant gives the owner the...
-
A Treasury STRIPS matures in 8.5 years and has a yield to maturity of 6.5 percent. If the par value is $100,000, what is the price of the STRIPS? What is the quoted price?
-
A warrant gives its owner the right to purchase three shares of common stock at an exercise price of $53 per share. The current market price of the stock is $58. What is the minimum value of the...
-
Bloomberg Intelligence listed 50 companies to watch in 2018 (www .bloomberg.com/features/companies-to-watch-2018). Twelve of the companies are listed here with their total assets and 12-month sales....
-
The equilibrium equations and Ka values for three reaction systems are given below. a. Which conjugate pair would be best for preparing a buffer with a pH of 2.88? H3O (a)HC204 (aq): Ka 5.6 X 10 H3O...
-
The Coca-Cola Company is the number-one seller of soft drinks in the world. Every day an average of more than 1.5 billion servings of Coca-Cola, Diet Coke, Sprite, Fanta, and other products of...
-
Go to the Wall Street Journal home page at www.wsj.com. Search for any firm of your choice. Find its earnings announcements. What did you learn about the company from the announcements? Also, search...
-
The City of Townsends city council authorized the establishment of an internal service fund to provide human resource services to city departments. The following transactions took place in the...
-
61. The solubility product of CuS, AgS and HgS are 10 37, 104 and 1054 respectively. The solubility of these sulphides will be in the order (1) HgS> AgS > Cus (2) AgS>HgS > CuS (3) CuS AgS > HgS (4)...
-
On October 15, 2018, our company sells to a retailer located in Austria 12,000 units of a product at a sales price of 35 per unit, and we require payment in Euros (). The exchange rate on the date of...
-
You have been hired to value a new 30-year callable, convertible bond. The bond has a coupon rate of 2.3 percent, payable semiannually, and its face value is $1,000. The conversion price is $49, and...
-
Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $485,000 per year. You believe the technology used in the machine has a 10-year life; in other...
-
In Exercises 1150, evaluate the limit if it exists. If not, determine whether the one-sided limits exist. For limits that dont exist indicate whether they can be expressed as = or = lim X1.5 X
-
Music lessons for your child will cost $1,265 per year. If you get a part-time job that pays $6.05 per hour, how many hours will you have to work in a year to pay for the music lessons?
-
Ben opened a retail store on 1 April 2017. He introduced the following into the business. Inventory 15 200 Shop fittings 14 300 Cash 17 900 (of which $17 400 was paid into a business bank account) On...
-
Prepare the finance department's budget for next year. He thinks expenses will be about $120,000, but decides to add a cushion of $80,000, for a total submitted budget of $200,000.
-
Prepare the required March 31st and June 30th journal entries. You are only completing the payroll and vacation accrual portion of the payroll entries and cash can be credited to account for actual...
-
Employers must ensure that the employee's regular earnings meet. How the minimum wage requirements and that overtime and vacation pay are calculated according to the provincial/territorial...
-
(a) Show that 1. (1- t), (1 - t)2, (1- t)3 is a basis for P(3). (b) Write p(t) = 1 + t3 in terms of the basis elements.
-
The Higher the time period of the financial security the higher the. ............... risk. O a. Maturity O b. Default and Maturity Oc. Default O d. Liquidity
-
Cow Chips, Inc., a large fertilizer distributor based in California, is planning to use a lockbox system to speed up collections from its customers located on the East Coast. A Philadelphia-area bank...
-
No More Pencils, Inc., disburses checks every two weeks that average $97,000 and take seven days to clear. How much interest can the company earn annually if it delays transfer of funds from an...
-
1. What is Webb Corporation's total net cash flow available from the current lockbox system to meet payroll? 2. Under the terms outlined by Third National Bank, should the company proceed with the...
-
(b) On March 2, 2023, Zoe Robinson, Karen Garcia, and Veronica Lee start a partnership to operate a personal coaching and lifestyle consulting practice for professional women. Zoe will focus on...
-
Describe the relationship between symptoms and problems. Also, describe and explain the three general types of error that can occur in problem-solving. Give examples.
-
As an incentive for farmers, Canadian government sets a guaranteed price which is higher than the market-determined price for food products (price floor). Can you explain with the aid of a diagram...
Study smarter with the SolutionInn App