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Bond with Warrants

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FINC 5880
Session 9

a. Calculate the value of the debt portion of the bonds with warrants.

Stock price $30
Bonds-life and par value 20
Par value $1,000
# of warrants per bond 40
Exercise price $36
Warrant market value @ P=$30) $0.75
Yield on straight bonds 8%

b. Calculate the dollar coupon amount per bond with warrants.

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Solution Summary

Calculates
1) the value of debt portion for a bond with warrants
2) the coupon payment for such a bond.

Also lists the advantages of a bond with warrants for issuer as well as investor

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Please see the attached file.

Question. Assume the firm's stock now sells for $30 per share. The company wants to raise $20 million by issuing 20-year, annual interest, $1,000 par value bonds. Each bond will have 40 warrants attached, each exercisable into 1 share of stock at an exercise price of $36. The firms straight bonds yield 8%. Each warrant is expected to have a market value of $0.75 when the stock sells at $30. The company wants to establish a coupon interest rate and dollar coupon to ensure that the bonds will clear the market.

a. Calculate the value of the debt portion of the bonds with warrants.

Stock price $30
Bonds-life and par value 20
Par value $1,000
# of warrants per bond 40
Exercise price $36
Warrant market value @ P=$30) $0.75
Yield on straight bonds 8%

# of warrants per ...

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