On August 31, 2020, Cebu Pacific Co. issued a 3,000, P1,000, 10%, 5 year bonds at 110 including accrued interest. The bond was dated January 1, 2020. Each bond is entitled of 2 warrants where each warrant gives the bondholder the right to purchase 15 shares of common stock, P100 par at P110. On August 31, 2020, the prevailing market interest rate for similar debt without warrant is 12%. On January 1, 2021, 40% of the warrant was exercised. Question: What is the equity component (warrant) of the bond?

On August 31, 2020, Cebu Pacific Co. issued a 3,000, P1,000, 10%, 5 year bonds at 110 including accrued interest. The bond was dated January 1, 2020. Each bond is entitled of 2 warrants where each warrant gives the bondholder the right to purchase 15 shares of common stock, P100 par at P110. On August 31, 2020, the prevailing market interest rate for similar debt without warrant is 12%. On January 1, 2021, 40% of the warrant was exercised. Question: What is the equity component (warrant) of the bond?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 5P

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