Bonds with warrants
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ACME is setting the terms on a new issue of bonds with warrants. The bonds will have a 30-year maturity and annual interest payments. Each bond will come with 20 year warrants that give the holder the right to purchase one share of stock per warrant. The investment bankers estimate that each warrant will have a value of $10.00. A similar straight-debt issue would require a 10% coupon. What coupon rate should be set on the bonds-with-warrants so that the package would sell for $1,000 hide problem
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Solution Summary
The solution explains how to determine the coupon rate to set on bonds with warrants so that it can be sold at par
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There are 20 warrants and the value of each warrant is $10. The total value for warrants is 20X10=$200. The price of the package is $1,000. The price for the ...
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