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    Implied Value of the Warrants Attached Bonds

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    Gregg Company recently issued two types of bonds. The first issue consisted of 20-year straight debt with an 8 percent annual coupon. The second issue consisted of 20-year bonds with a 6 percent annual coupon and attached warrants. Both issues sold at their $1000 par values. What is the implied value of the warrants attached to each bond?

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    Solution Preview

    Please see the attachment.

    Let's first focus on the first bond (the one without the warrants). It pays 8% of $1,000 ($80) per year, and is valued at $1,000. This implies that the market yield to maturity (YTM) is 8%. That is, the ...

    Solution Summary

    The solution contains an explanation of the process and reasons as well as the formula and computation for calculating the attached warrants.