Question

Troy has decided to sell $3 million of 10 year debentures with warrants at their $1,000...

Troy has decided to sell $3 million of 10 year debentures with warrants at their $1,000 face value. The debentures carry a coupon of 12%. Each debenture will have attached 10 warrants, each warrant exercisable into two shares of common stock at an exercise price of $35. Each warrant is expected to trade at a market value of $5.

Currently Troy has only one outstanding issue of straight debentures which trade to yield 14%. These debentures will mature in 10 years and have a $1,000 face value.

The debentures with warrants issue has been priced in such a way that the initial market value of 1 debenture with warrants will equal the market value of 1 straight debenture plus the expected market value of the 10 attached warrants.

Required:

Calculate the interest payment (coupon rate) on the straight debenture which is already outstanding.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

­SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

COUPON RATE = 13.041%

COUPON PAYMENT = 130.41

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Warren Corporation's stock sells for $40 per share. The company wants to sell some 10-year, semi...
Warren Corporation's stock sells for $40 per share. The company wants to sell some 10-year, semi annual coupon payment bond, at $1,000 par value. Each bond would have 40 warrants attached to it, each exercisable into one share of stock at an exercise price of $45. The firm's straight bonds yield to maturity is 10%. Each warrant is expected to have a market value of $5 that the stock sells for $42. What annual coupon rate must be set on...
Warren Corporation’s stock sells for $40 per share. The company wants to sell some 10-year maturity,...
Warren Corporation’s stock sells for $40 per share. The company wants to sell some 10-year maturity, semi-annual annual coupon payments bond at $1,000 (par value). Each bond would have 30 warrants attached to it, each exercisable into one share of stock at an exercise price of $45. The firm’s straight bonds yield to maturity is 10%. Each warrant is expected to have a market value of $4 given that the stock sells for $42. What annual coupon rate must the...
Warren Corporation’s stock sells for $40 per share. The company wants to sell some 10-year maturity,...
Warren Corporation’s stock sells for $40 per share. The company wants to sell some 10-year maturity, semi-annual annual coupon payments bond at $1,000 (par value). Each bond would have 40 warrants attached to it, each exercisable into one share of stock at an exercise price of $45. The firm’s straight bonds yield to maturity is 10%. Each warrant is expected to have a market value of $5 given that the stock sells for $42. What annual coupon rate must the...
Calmer Inc. plans to issue 20-year bonds with annual interest payments and with 20 warrants attached....
Calmer Inc. plans to issue 20-year bonds with annual interest payments and with 20 warrants attached. Each warrant is expected to have a value of $0.50. A similar straight-debt issue would require an 12% coupon. What coupon rate should be set on the bonds-with-warrants so that the bond will sell for $1,000?
A bond with 10 detachable warrants has just been offered for sale at $1,000. The bond...
A bond with 10 detachable warrants has just been offered for sale at $1,000. The bond matures in 10 years and has an annual coupon of $53. Each warrant gives the owner the right to purchase two shares of stock in the company at $47 per share. Ordinary bonds (with no warrants) of similar quality are priced to yield 7 percent. What is the value of one warrant? (Do not round intermediate calculations and round your answer to 2 decimal...
2. Babcock Industries has just sold a bond issue with 10 warrants attached to each bond....
2. Babcock Industries has just sold a bond issue with 10 warrants attached to each bond. The bonds have a 20-year maturity, an annual coupon rate of 12%. They sold at an original offering price of $1,000. The current yield-to-maturity of bonds of equal risk, but without warrants is 15%. What is the value of each warrant?
A bond with 25 detachable warrants has just been offered for sale at $1,000. The bond...
A bond with 25 detachable warrants has just been offered for sale at $1,000. The bond matures in 15 years and has an annual coupon of $120. Each warrant gives the owner the right to purchase two shares of stock in the company at $14 per share. Ordinary bonds (with no warrants) of similar quality are priced to yield 17 percent. What is the value of one warrant?
Warren Corporation’s stock sells for $42 per share. The company wants to sell some semi-annual coupon...
Warren Corporation’s stock sells for $42 per share. The company wants to sell some semi-annual coupon payment bond with 6 years maturity at $1,000 today. Each bond would have 80 warrants attached to it, each exercisable into one share of stock at an exercise price of $47. The firm’s straight bonds yield to maturity is 8%. Each warrant is expected to have a market value of $2.25 given that the current stock sells for $42. What annual coupon rate must...
ABC Company is planning to issue 20,000 bonds with warrants attached. The bonds will make annual...
ABC Company is planning to issue 20,000 bonds with warrants attached. The bonds will make annual interest payments of 6.8% and will have a 20-year maturity. There will be 75 warrants attached to each bond, with each warrant giving the right to purchase one share of stock at a price of $12. A similar straight-debt issue would require a 10% coupon rate. Total assets before issuance equal $120 million, with $50 million of liabilities. What is the value of the...
A company recently issued $1,000 par value 10-year bonds with a 5% coupon paid annually with...
A company recently issued $1,000 par value 10-year bonds with a 5% coupon paid annually with warrants attached. These bonds are currently trading for $1,000. The company also has outstanding $1,000 par value 10-year regular debt with an 8% coupon paid annually, also trading for $1,000. What is the implied value of the warrants attached to each bond?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT