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Problem 20-01 Warrants Neubert Enterprises recently issued $1,000 par value 15-year bonds with a 6% coupon paid annually and warrants attached. These bonds are currently trading for $1,000. Neubert also has outstanding $1,000 par value 15-year straight debt with a 8% coupon paid annually, also trading for $1,000. What is the implied value of the warrants attached to each bond

Respuesta :

Answer:

The implied value of the warrants attached to each bond is $ 171.19

Explanation:

In order to calculate the implied value of the warrants attached to each bond we would have to calculate the following:

implied value of the warrants attached=Value of Bonds with Warrants-Value of Straight Bonds

Value of Bonds with Warrants=$1,000

Value of Straight Bonds=PV (8%, 15, 6% x 1000, 1000) = $828.81

Therefore, implied value of the warrants attached=$1,000-$828.81

implied value of the warrants attached=$ 171.19

The implied value of the warrants attached to each bond is $ 171.19